Final answer:
A money purchase plan is a type of defined contribution plan where employers and employees contribute to the employee's retirement account, offering tax benefits and protection against inflation-related loss of buying power.
Step-by-step explanation:
A money purchase plan is a type of defined contribution plan. These plans, which include options like 401(k)s and 403(b)s, involve an employer contributing a fixed amount to an employee's retirement account regularly, such as with every paycheck. The employee also often contributes.
This money is then invested through various investment vehicles, offering tax-deferred growth. The key advantage of these plans is their portability, allowing individuals to take their retirement savings with them if they change employers. As a result, the burden of inflation does not impact the retiree as severely as with traditional defined benefit plans, where fixed incomes can lose buying power over time.