MONEY  PURCHASE PLAN

Money Purchase (MP) plan is a type of defined contribution plan that requires the plan sponsor to contribute a specified percentage of each participant's compensation (up to 25%) to that employee's account, regardless of profits. Until EGTRRA provisions were effective in 2002, MP plans were used to maximize contributions to the full individual limit. In most cases, this involved combining a money purchase plan with a profit sharing plan. With the increase in deductibility limits to 25% for profit sharing plans, such combination is no longer necessary. Most plan sponsors with combined plans are terminating or merging their money purchase plan to reduce the administration costs from two plans to one. There is little compelling reason to use MP plans any longer.
 

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