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.

BREAKING DOWN '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.

  1. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  2. Purchase-Money Mortgage

    A mortgage issued to the borrower by the seller of the home as ...
  3. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  4. Qualified Pre-Retirement Survivor ...

    A death benefit that is paid to the surviving spouse of a deceased ...
  5. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
  6. W-2 Form

    The W-2 form reports an employee's annual wages and the amount ...
Related Articles
  1. Retirement

    3 Reasons To Use An Employer-Sponsored Retirement Plan

    If you aren't participating in your employer-sponsored retirement plan, you're missing out! Learn the benefits.
  2. Savings

    3 Common Excuses For Not Contributing To A Retirement Plan

    If you're not participating in your employer-sponsored retirement plan, there may be some easy solutions.
  3. Budgeting

    5 Ways To Stretch Your Retirement Budget

    Living comfortably can be easy if you follow a simple plan.
  4. Taxes

    The Tax Benefits Of Having A Spouse

    Check out the perks designed to promote and preserve your post-work savings - if you're married, that is.
  5. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  6. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  7. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  8. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  9. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  10. Entrepreneurship

    7 HR Basics for Small Businesses

    Whether or not you are a fan of human resources, every employer needs to know the answers to these questions.
  1. What is the difference between a Keogh and an IRA?

    The Keogh plan, or HR10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed ... Read Full Answer >>
  2. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  3. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  4. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  5. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  6. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center