Money Purchase Pension Plan
Candlefocus EditorBecause the contribution comes from the employer, the employee does not pay any taxes on it until the money is withdrawn. This makes the money purchase pension plan a qualified retirement plan recognized by the Internal Revenue Service (IRS).
The employer typically sets the eligible age of a participant in the money purchase pension plan and must determine the benefit level. The benefit level will depend on the employer, since the employer ultimately sets the pension contributions, and as a result, determines the benefits. Typically, the employer will match the employee’s contribution at a certain percentage, though this can also vary from employer to employer.
While the employer sets the contribution levels of the money purchase pension plan, it is important for the employee to stay in constant communication with their HR department to ensure the approval of their pension investment accounts and keep track of their pension contributions.
While the money purchase pension plan is a qualified retirement plan and offers great tax advantages, there are certain risks associated with the plan that both employers and employees must be aware of. This includes an employer’s potential inability to continue meeting the plan’s financial obligations, or employers pulling out of the plan without funded reserves or without transferring funds to individual employee accounts.
Overall, the money purchase pension plan is a relatively low-maintenance retirement savings vehicle that is preferred by many employers. The plan offers tax advantages, though understanding the individual requirements of the particular plan and staying vigilant of potential risks is important.