Society For Human Resource Management (SHRM) Certified Professional Practice Exam

What type of retirement plan is Jim using if he has his employer match regular contributions?

1. He uses a contribution plan

2. His retirement plan isn't defined

3. He knows what benefits he holds

4. He is getting the money sooner

The correct answer is: He uses a contribution plan

Jim is likely using a contribution plan because this type of retirement plan is characterized by the employee and employer making contributions to the account. In many cases, employers offer matching contributions to incentivize employees to save for retirement. This means that for every dollar the employee puts in, the employer adds a certain percentage up to a specified limit. The idea behind a contribution plan is that both the employee's contributions and the employer's matching funds grow over time, usually through investments made within the retirement account. This allows employees like Jim to build a substantial retirement savings based on both personal contributions and employer matches, leading to a more secure financial future. The other options do not accurately describe the situation: saying the retirement plan isn't defined doesn’t capture the essence of a defined contribution plan, which does have set parameters for contributions. Knowing what benefits he holds isn't specific to the mechanics of how his plan works; it speaks more to awareness than to the structure of the plan itself. Getting the money sooner doesn’t pertain to the type of plan; it could imply various withdrawal scenarios that aren't directly related to the classification of the retirement plan Jim is using.