Money purchase plan

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Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and the firm contributes at the same or a different rate. Also called an individual account plan.

Money Purchase Plan

An employer-contribution retirement plan in which the employer is required to place a certain amount in the retirement account each year. Usually this is a certain percentage of the employee's wages or salary. The employer is required to contribute the agreed-upon amount regardless of how the company performs in a given year. This reduces the risk for the account holder, but increases the risk for the employer. It is also called an individual account plan.

money purchase plan

A defined-contribution pension plan in which the employer contributes a specified amount of cash rather than shares of stock or a percentage of profits.

Money purchase plan.

A money purchase plan is a defined contribution retirement plan that requires the employer to contribute a fixed percentage of each employee's salary every year the plan is in effect.

The contributions must be made regardless of how well the company does in a given year. In contrast, in profit-sharing plans, the employer's contribution is more flexible because it is based on annual profits.

However, some small-company employers or self-employed people create a paired plan that combines money purchase with profit sharing. Paired plans require them to add at least a minimum percentage of each employee's salary to the plan each year.

References in periodicals archive ?
Tenders are invited for provision of retirement plan consulting services on the county~s 401(a) money purchase plans and 457 defined contribution plans.
They had suffered from the move away from final salary pension schemes to less generous money purchase plans and when they come to claim the state pension it will make up a smaller proportion of their previous earnings.
A 401(k) plan can provide annuity distribution options to participants in the same manner that money purchase plans typically provide them.
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.
The National Association of Pension Funds said default funds - also known as money purchase plans - should shift members' money away from shares to safer investments as they approach retirement.
Munnell critically evaluates the implications of shifting from DB to 401(k) plans, as well the shift to money purchase plans in the United Kingdom.
A money purchase plan is one in which the employer promises to contribute a certain percentage of each participant's annual compensation to the plan each year (see "MONEY PURCHASE PLANS," below).
The proposed regulations apply mainly to defined benefit pension plans and money purchase plans, not to 401(k) plans and other types of retirement plans, the IRS officials emphasize.
As a result, 401(k) plans have become more attractive options than SEP-IRAs, Simple IRAs or profit-sharing or money purchase plans.
First, percentage contribution limits for profit sharing plans have increased from 15 percent of compensation to 26 percent of compensation, making money purchase plans potentially obsolete.
People with private pensions or company money purchase plans must use their pension pot to buy an annuity, which guarantees them an income for life, before they are 75.
They are being replaced by money purchase plans which rely on stocks and shares rising in price.