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Money Purchase Pension Plan

Key Feature

  • Favors younger employees

A money purchase pension plan is a type of pension plan that is designed to favor the younger employees. In general, contributions are allocated to a participant's account based upon his compensation (such as a contribution equal to 10% of compensation). Although a younger and an older employee with the same level of compensation will receive the same allocation, the long-term accumulation of tax-sheltered funds will benefit younger employees more than older employees.

Contributions are fixed by formula and may be set at any amount from a minimal level (such as 3% of compensation) to a maximum level of 25% of compensation (or $40,000 if less). At retirement a participant's benefit is equal to the then value of the investments held on his or her behalf.

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