A money purchase pension plan is a defined contribution plan in which the company's contributions are mandatory and are usually based solely on each participant's compensation.

The obligation to fund the plan is unique to money purchase pension plans. In most profit sharing plans, there are generally no unfavorable consequences for the company if it fails to make a contribution. If the company maintains a money purchase pension plan, however, its failure to make a contribution can result in the imposition of a penalty tax. Contributions must be made to a money purchase pension plan even if the company has no profits.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) changed the amount that can be deducted for contributions made to a profit sharing plan from 15% of compensation to 25% of compensation. Therefore, many sponsors who maintain both a money purchase plan and a profit sharing plan may find it desirable to merge or terminate the money purchase pension plan, since participants can now reach the maximum funding level without it.

The REDW Team can administer your money purchase pension plan using daily, quarterly or annual processing. We can also look at the plan design, in conjunction with other plans you may have, to determine if a merger or termination might be an appropriate option.