Money-Purchase Pension Plan

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Money-Purchase Pension Plan

A defined contribution pension in which an employer must contribute an amount equal to a certain percentage of the employee's compensation, usually 25%. While the amount of employer contribution is fixed, the amount of benefit is not. There are also penalties associated with receiving payments from the pension before retirement. These contributions are tax-deductible for the employer and guarantee the employee a certain amount of principal in the pension plan.
References in periodicals archive ?
Most of the plans available to small businesses--simplified employee pensions (SEPs), salary reduction simplified employee pensions, SIMPLE IRA plans, SIMPLE 401(k) plans, regular 401(k)s, profit-sharing plans, money purchase pension plan, Keogh plans, defined benefit plans, defined contribution plans, and employee stock ownership plans--are subject to the minimum coverage requirements, minimum vesting standards, the actual deferral percentage test, the non-discrimination requirements, and the top heavy plan requirements.
But since a money purchase pension plan is primarily a retirement plan, the "incidental" limitation applies regardless of whether the plan provides that funds used to purchase insurance must have been accumulated at least two years.
DB and money purchase pension plan sponsors should identify participants who could be affected by lower limits and discuss with counsel whether they would need to provide 45 days' advance notice of the reduction, Mercer says.
A cash balance plan works somewhat like a money purchase pension plan discussed in Chapter 16, but money purchase plans do not involve employer guarantees of the rate of return.
A money purchase pension plan is a defined contribution plan in which the company's contributions are mandatory and are usually based solely on each participant's compensation.
Corporation 3, for example, maintained an 8-percent-of-compensation money purchase pension plan.
Y borrowed $20,000 front the X money purchase pension plan, which later merged into the X profit sharing plan.
Because the maximum annual addition, and thus deductible employer contribution, is $40,000 in 20002, individuals earning $160,000 or more may receive a $40,000 deductible contribution under either a profit-sharing plan, a money purchase pension plan, or a profit-sharing/401(k) plan.
This change eliminates the need for an employer to maintain both a profit-sharing plan and a money purchase pension plan in order to reach the full 25 percent limit.
Adopt changes to money purchase pension plan and deferred compensation plan.
Also, except as provided in regulations, a money purchase pension plan is treated like a profit-sharing or stock bonus plan for purposes of these deduction rules.