Retirement Savings Practice Test

The money purchase pension plan is designed to require annual contributions from the employer to fund employees' retirement benefits. This type of plan is straightforward, as it mandates the employer to contribute a set percentage of each employee’s salary to the plan every year, regardless of the company’s financial performance.

One key reason this plan does not require an actuary is that the contributions made are fixed and predictable, which contrasts with other types of pension plans where actuarial assumptions about future benefits and liabilities need to be considered. In plans like cash balance and target benefit pension plans, actuaries are involved to ensure that benefits can be met based on the plan’s funding status and the adequacy of contributions toward promised benefits.

The money purchase pension plan’s structure allows for simplicity and clarity regarding contribution levels, making it easier for employers to comply with funding requirements without the complexities that come with actuarial calculations found in certain defined benefit plans. This ensures that participants receive the designated contributions, helping to secure their retirement savings over time.