What is a money purchase pension plan?
A money purchase pension plan is a defined contribution plan in which the employer’s contributions are mandatory and are usually based solely on a percentage of participants compensation. The obligation to fund the plan makes a money purchase pension plan different from other defined contribution plans. Failure to make a contribution can result in the imposition of a penalty tax. Contributions must be made, even if the employer has no profits. Retirement benefits are based on the amount in the participant’s account at the time of retirement, i.e., whatever pension the money can purchase.
