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Money Purchase Pension Plans A money purchase pension plan is a defined contribution plan in which the employer is required to make an annual contribution to each employee's account regardless of the firm's profitability for the year. This stated commitment under the plan is the distinguishing characteristic of a money purchase pension plan. Annual contributions are usually specified as a percentage of a participant’s annual compensation although there are a number of other approaches. Contributions are credited to participants’ accounts under the plan. Prior to 2002, there were higher contribution limits for money purchase pension plans than profit sharing plans and they were popular with businesses trying to maximize contributions to a defined contribution plan. Since 2002, the use of money purchase pension plans has decreased substantially since profit sharing plans allow for the same level of contributions and have added flexibility. As with any tax-qualified defined contribution plan, contributions and earnings in a money purchase pension plan accumulate tax-free until withdrawn by the participant. |
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