A Money Purchase Plan is a DC
Plan in which the company's contributions are mandatory and are usual based solely on a
participant's compensation. Effective 1/1/02 the maximum individual contribution is the lesser of
100%
of compensation or $40,000 (up from 25% & $35,000 in 2001). HOWEVER,
THE MAXIMUM OVERALL PLAN CONTRIBUTION/DEDUCTION LIMIT
IS STILL 25% OF SALARY
The obligation to fund the Plan and the fixed formula makes a Money Purchase Plan
different from most Profit Sharing Plans. If a Company fails to make the required
deposit, penalty taxes may be imposed.
Retirement Benefits are based on the amount in the participants' account account at the time of retirement/termination of employment. The following is an example of a Money Purchase Plan formula:
The Employer shall contribute each Plan Year during which the plan is in effect on behalf of each participant an amount equal to 10% of compensation
Under that formula, an equal percentage is allocated to
each participants account. The age and length of service of the Participant is
irrelevant for both contribution and allocation purposes.
Contribution formulas in a Money Purchase Plan may also be based on compensation levels,
job descriptions, or "special groupings" as set forth in the Plan document.
However, regardless of the Plan formula.....the ultimate retirement benefit is
...the actual account balance not a stated benefit.
In addition to the contribution and/or forfeiture allocations, each the account is
credited with it's pro-rata share of the investment experience of the fund for that year
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