Which option best describes how contribution plans operate?

Contribution plans, such as 401(k) plans, operate by allowing both employees and employers to make contributions to an individual’s retirement account. Option C accurately describes this characteristic as it emphasizes the predetermined amount of money that is contributed today, which is then invested to grow over time for retirement purposes. The contributions can come from both employee salary deferrals and employer matches, and they are typically subject to investment risk, meaning the funds can increase or decrease in value.

In addition to specifying contribution amounts, these plans usually allow employees to choose how their contributions are invested, based on a selection of investment options. The ultimate retirement benefit is not guaranteed, as it depends on the performance of these investments and the total amount contributed.

Other options do not capture the essence of how contribution plans function. For instance, some plans may have employee contributions, others may include employer funds, or may have certain features that do not align with defining factors of contribution plans. Overall, the focus on current contributions leading to future growth makes option C the most accurate description.