Money-Purchase Pension Plan

Definition of 'Money-Purchase Pension Plan'


A pension plan to which employers and employees make contributions based on a percentage of annual earnings, in accordance with the terms of the plan. Upon retirement, the total pool of capital in the member's account can be used to purchase a lifetime annuity. The amount in each money-purchase plan member's account will differ from one member to the next, depending on the level of contributions and investment return earned on such contributions.

Also known as a defined contribution plan.

Investopedia explains 'Money-Purchase Pension Plan'


In a money-purchase pension plan, the risk of ensuring an adequate level of retirement income rests squarely with the employee. In comparison, with a defined benefit pension plan, the employer has an ongoing obligation to ensure the plan is adequately funded, thus spreading the plan risk between the employer and plan members over time. Employers who have established money-purchase plans for their employees are required to file Form 5500 annually.



comments powered by Disqus
Hot Definitions
  1. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  3. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  4. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  5. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  6. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
Trading Center