Final answer:
A retirement plan with a formula for determining benefits is a defined benefit pension plan, which differs from defined contribution plans like 401(k)s, and faces challenges from inflation over time.
Step-by-step explanation:
A plan that contains a formula for determining retirement benefits is known as a defined benefit pension plan. Unlike defined contribution plans such as 401(k)s and 403(b)s, where the employer contributes a fixed amount to the worker's retirement account, a defined benefit plan promises a specific benefit at retirement which is usually calculated based on factors like salary history and duration of employment.
Most traditional pensions are considered defined benefits plans, as they provide a fixed nominal dollar amount per year during retirement, often creating challenges due to inflation and fixed income issues over time.