This is a pension plan in which the contribution is a pre-determined amount. For example: 5% of annual salary each year. The formula for determining the contribution must be defined in the plan document. Once a plan year has started and participants have met the requirements to receive the contribution, the employer is required to make the contribution.

Because contributions to money purchase plans are not discretionary, these plans are much less flexible and therefore much less attractive to most plan sponsors. Currently their application is generally limited to those employers with a need to guarantee a specific contribution amount. An example of this would be an employer who has a collective bargaining agreement with a union that guarantees the union employees a specific retirement amount each year.

Money Purchase plan has the same individual annual limits as Traditional Profit Sharing plans, $46,000. The amount of the contribution that is tax-deductible for the employer is limited to 25% of the gross annual salaries of all plan participants