Final answer:
Pension plans have evolved from contributory plans to defined contribution plans like 401(k)s and 403(b)s. In these plans, the employer and employee contribute a fixed amount to a retirement account that can be invested in various ways. These plans offer portability and provide retirees with the opportunity to benefit from investment returns.
Step-by-step explanation:
A pension plan is contributory when the employer makes payments to a funding agency. However, pensions and other defined benefits retirement plans are increasingly rare and have been replaced by "defined contribution" plans, such as 401(k)s and 403(b)s. In these plans, the employer contributes a fixed amount to the worker's retirement account on a regular basis, usually every pay check, and the employee often contributes as well.
The worker invests these funds in a wide range of investment vehicles, and these plans are tax deferred and portable. If the individual takes a job with a different employer, their 401(k) comes with them. To the extent that the investments made generate real rates of return, retirees are not burdened by the inflation costs of traditional pensioners.