Money Purchase Pension Plan

A money purchase pension plan is a defined contribution plan in which an employer makes a fixed contribution to an employee's retirement account each year. The employee may also make contributions, and the money in the account grows tax-deferred until it is withdrawn.

Money purchase pension plans are often used by small businesses because they are relatively simple to set up and administer. However, they can be expensive for employers, and the employee's retirement income is not guaranteed.

There are two main types of money purchase pension plans:

• Defined contribution plans: In a defined contribution plan, the employer makes a fixed contribution to the employee's retirement account each year. The employee may also make contributions, and the money in the account grows tax-deferred until it is withdrawn. The employee's retirement income is not guaranteed.
• Defined benefit plans: In a defined benefit plan, the employer promises to pay the employee a certain amount of money each year after retirement. The amount of the pension is based on the employee's salary and years of service. Defined benefit plans are more expensive for employers than defined contribution plans, but they offer the employee a guaranteed retirement income.

Money purchase pension plans can be a good way for employees to save for retirement. However, it is important to understand the risks and costs involved before making a decision about whether to participate in a money purchase pension plan.