Money Purchase Plans

Money purchase plans are similar to profit sharing plans with the distinction that the employer contribution in not discretionary.  Instead, the rate of employer contribution is specified in the plan document and is required to be made each year. Similar to profit sharing plans, the method of allocation in a money purchase plan can be any nondiscriminatory method specified in the plan document and can be independent of the contribution rate specified in the plan. There are a number of money purchase plans that look like or are paired with a defined benefit plan including target benefit plans and floor offset plans. Additionally, some governmental employers who have elected out of participation in Social Security use a money purchase plan called a “pickup-plan” to provide benefits in place of Social Security for their employees.

Additional information regarding money purchase plans can be found on the IRS’ website here.