Legal Definitions - money-purchase plan

A money-purchase plan is a type of employee benefit plan that is written for employees, officers, and advisers of a company. It can include various plans such as stock-purchase, savings, option, bonus, stock-appreciation, profit-sharing, thrift, incentive, pension, or similar plans. The plan requires mandatory employer contributions without regard to employer profits, and contributions are frequently stated as a percentage of employee compensation.

• A company sets up a money-purchase plan for its employees, where the employer contributes 5% of each employee's salary to the plan every year, regardless of the company's profits.
• Another company establishes a money-purchase plan that includes a profit-sharing component, where the employer contributes a percentage of the company's profits to the plan in addition to the mandatory contributions.

These examples illustrate how a money-purchase plan works by requiring the employer to make mandatory contributions to the plan, which are usually a percentage of the employee's salary. The plan can also include additional contributions based on the company's profits or other factors. The contributions are invested and accumulate over time, and the employee receives the benefits upon retirement or other qualifying events.