Final answer:
A money purchase plan bases its annual contribution on the percentage of pay stated in the plan document. This method of contribution to retirement accounts is part of a broader shift from defined benefits to defined contribution plans, like 401(k)s and 403(b)s, providing more control and potential growth for retirement funds. Option c is correct.
Step-by-step explanation:
A money purchase plan is a type of retirement plan where a company contributes to an employee's retirement account based on a fixed percentage of their earnings. The annual contribution that a company makes to a money purchase plan is based on the percentage of pay stated in the plan document, rather than the profitability of the company for the year, an annual resolution by the board of directors, or the investment earnings in the trust for the year.
Firms have a variety of ways to raise financial capital for their ventures. They may receive funds from early-stage investors, reinvest profits back into the company, acquire loans through banks or issue bonds, or offer stock to the public. These financial decisions impact the future of the company's growth and how the capital will be paid back.
Legacy pension plans, or defined benefits plans, have become less common, replaced by defined contribution plans like 401(k)s and 403(b)s. These plans allow for recurring contributions which are a fixed amount from the employer, alongside employee contributions, invested into diverse financial vehicles. They offer tax benefits and are portable across different employers, which can provide real rates of return and mitigate the effects of inflation for retirees.