Money Purchase Plan
Definition - What does Money Purchase Plan mean?
A money purchase plan is a defined-contribution retirement plan in which an employer, upon installing the plan, makes a mandatory contribution every year for each employee enrolled in it. Employer contribution is tax-deductible, while employee contribution is tax-deferred until withdrawal.
It is also known as a money-purchase pension plan.
Insuranceopedia explains Money Purchase Plan
The government sets a limit to the employer's contribution. But the contribution is fixed, even if the company has gained or lost profit for that year. That's why other employers tend to prefer the profit-sharing plan over this, as contribution in a profit-sharing plan depends on how the company is doing financially.
Employees can still avail of other retirement programs while enrolled in a money purchase plan.
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