Money Purchase Pension Plan

Money Purchase Pension Plans require an employer to fund a specific contribution to the retirement plan on an annual basis. Because of the fixed contribution, the annual contribution liability can be easily estimated by the employer.

What is a Money Purchase Pension Plan?

A money purchase pension plan is a qualified defined contribution plan established to be funded completely by employer contributions through a stated contribution each year. The contributions deposited by the employer on the employees’ behalf are invested and grow on a tax deferred basis until the employee has a distributable event such as retirement or separation of service.

How much can an employer contribute to a money purchase pension plan?

An employer is allowed to contribute and deduct up to 25 percent of the total eligible compensation of the plan participants. The plan document for the plan will indicate the required contribution to the plan each year. This contribution is determined by the employer when the plan is established and can only be changed with a formal amendment to the plan document. Since a contribution to the plan is required, the employer must deposit the required contribution into the plan no later than the due date of the company’s tax return not to exceed 9 ½ months after the end of the plan year end. Failure to fund the stated contribution each year can result in plan compliance issues.

What happens if an employer does not deposit the required contribution by the deadline?

If the employer does not deposit the required contribution by the deadline, the employer will be assessed an excise tax. This excise tax is required to be paid by the employer and must be filed with a Form 5330 to the Internal Revenue Service.

How does an employee receive their money from the plan?

Employees can receive a distribution from the plan in a number of ways. Funds can be received via plan loans, hardship distributions, in-service distributions, required minimum distributions or distributions due to termination or retirement. Of course, the preferred distribution would be due to retirement. The provisions of the plan set forth by the employer will explain the options for receiving a distribution from the plan.

What is required to administer a money purchase pension plan?

A money purchase pension plan is required to have a written plan document. This document is drafted by your third party administrator and executed by the owner/employee. In addition to the plan document, the plan is required to be tested on an annual basis to insure the plan passes all the nondiscrimination rules set forth in the Internal Revenue Code. A Form 5500 must also be filed electronically with the Department of Labor on an annual basis. If the employer has more than 100 employees eligible to participate in the plan, an annual audit of the plan is also required.

What are the first steps to getting a money purchase pension plan started?

If you are interested in exploring a money purchase pension plan, please contact Resource Benefits Administrators at (254) 776-6214 or (512) 342-1652 and a representative will assist you with your questions and the procedures needed to get your plan established.

3415 Greystone Drive, Suite 205
Austin, Texas 78731
(512) 342-1652
5400 Bosque Blvd, Suite 500
Waco, Texas 76710
(254) 776-6214

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