Money Purchase Pension Plans

How These Plans Work
  • An employer is obligated to make predetermined contributions to the plan each year as defined in the plan
  • Contributions are credited to accounts established for each employee in a trust on the basis of pay, age, service, or some other objective basis that is subject to nondiscrimination tests
  • Contributions can be coordinated with Social Security to give highly compensated employees a larger share of the total contribution
  • Contributions grow in a tax-deferred trust that is protected from creditors of the company and the employee
  • Distributions can only be made after an employee terminates employment, reaches the plan’s normal retirement age or age 70-1/2; no other distributions are permitted to employees who currently work at the company
  • When an employee receives a distribution, his/her account can be rolled over to an IRA or the next employer’s retirement plan (if that plan accepts rollovers) to continue the tax-deferred status
  • Some plans allow employees to take a loan from their accounts
Things To Note
  • Money purchase contributions can be credited on other objective criteria, subject to nondiscrimination tests to ensure that highly compensated employees do not overly benefit
  • An employer can create various employee groups that get different levels of money purchase contributions, subject to nondiscrimination tests
  • A vesting schedule can be applied to money purchase contributions such that an employee might only get part of the money purchase pension account when he/she leaves the company
  • Money purchase pension plans have lost much of their appeal to profit sharing plans after changes to the tax rules in 2002 allow increased employer deductions for profit sharing plans
What We Can Do
  • Evaluate your objectives and recommend possible plan designs
  • Consult with you on regulatory changes and emerging trends
  • Perform modeling to determine the costs of varying levels of money purchase contributions
  • Perform annual nondiscrimination and coverage testing; identify corrective measures if tests fail
  • Assist in vendor searches to find appropriate service providers for your plan
  • Help with employee communications, including communication materials, employee meetings and workshops
  • Prepare plan documents, plan amendments, and required communications to employees
  • Assist in qualifying your plan with the IRS, including preparation of IRS submissions
  • Provide administration for your plan – daily valuation or traditional recordkeeping, process loans and distributions, including preparation of required governmental information returns related to distributions from the plan
  • Prepare the annual 5500 return/report required by the IRS, including any necessary interface with the plan’s independent auditors
  • Assist you with any IRS or DOL audit of your plan