Life · Chapter 11 · Defined Contribution Plans
Money Purchase Plan
Definition
A defined contribution plan where the employer MUST contribute a fixed percentage of each employee's salary every year — set in advance, regardless of company profits.
Example
Plan sets 5% → the company must contribute $2,500 for an employee earning $50,000, profit or no profit.
Exam tip
MUST-contribute vs profit-sharing's MAY-contribute — the mandatory/fixed language is the tell.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms