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What Are Money Purchase Pension Plans (MPPPs)?

What Are Money Purchase Pension Plans
Read Time: 3 min

The money purchase pension plan has become extremely popular in the past few years, and it does offer a lot of benefits. As you can make out from the name itself, these are comprehensive pension plans, and by knowing more about the same, you might be able to make a better decision for yourself. In the simplest terms, we can say that the money purchase pension plan is one of the best endeavors you can take up for retirement if you understand how the entire process works. Not only that, but when it comes to MPPP, your employer also matters a lot in this aspect. 

Employers must contribute an annual fixed proportion of each eligible employee’s salary to their account under a money purchase pension plan. The company can deduct the contributions from taxes, and the employees can defer paying taxes on them.

We will always suggest that before you buy a money purchase pension plan, you first understand the implication and how it can help you. Not only that, but you also have to understand that this particular pension plan might not be viable for every individual. If you think you have any confusion, you can choose to get in touch with professionals and learn in detail about what the pension plan is all about and how it can aid you as well. 

What Is the Money Purchase Pension Plan All About?

the Money Purchase Pension Plan All About
the Money Purchase Pension Plan All About

The first thing we will be discussing is what one means by the money purchase pension plan. This is one of the most comprehensive pension plans you have currently and is one where the participation of the employers is equally important. They need to contribute a percentage of their salary every year to the pension scheme irrespective of the company’s profitability. Sounds interesting, right? There are no two ways about the fact that the Money Purchase Pension Plan is one of the very interesting pension plans, and it does have a lot of long-term benefits as well.

In very technical terms, it can be said that the Money Purchase Pension Plan is an employer-sponsored retirement policy, and it is based on a yearly contribution from the employer. Not only that, but one of the very important factors about the retirement plan is that it can also aid employers in getting tax exemptions. The Money Purchase Pension Plan is great if employers are ready to contribute without default. You need to keep some key features in mind that make the pension plan unique. 

  • Contribution Scheme: 

The unique factor about the Money Purchase Pension Plan is that the contributions are completely based on the employer. The employee will not have any say in the scheme’s contribution. However, the employees can choose how the investment contribution will be, and it depends on the different available plans. However, a very important thing you need to keep in mind is that some plans can even allow the employees to contribute as well. However, it is completely subjective. 

  • Nature of Contribution:

When it comes to the Money Purchase Pension Plan, the next thing you need to know about is the nature of the contribution. We have already mentioned that here the contribution is usually made on an annual basis. Hence it is a monthly percentage of salary that is deducted every month and then deposited annually. A very important thing you need to keep in mind is that the contribution does not change depending on the company’s profitability for that particular financial year. No matter what the profitability is, the percentage of contribution is going to remain the same. 

  • There is A Vesting Schedule Involved:

Now you might be wondering, why is a vesting schedule involved here? As you might have already understood by now, one of this particular pension plan’s major features is that the employer makes the contribution. Hence, it is possible that after an employee can get hold of the pension plan, they might shift to another job. To make sure this is not the case and there is enough security, the vesting schedule is usually involved in this case. It usually lets one know when a particular percentage of money can be contributed to the pension plan.

The Final Wrap

Money Purchase Pension Plan
Money Purchase Pension Plan

If you think you need assistance when it comes to the Money Purchase Pension Plan, then you can choose to get in touch with us at Profit Jets. It will be our onus to help you understand the concept and aid you with complete details. Make sure that you discuss this with your employer so that you can have better knowledge about the scheme they can help you with.