What is the characteristic of an individual account in a money purchase pension plan?

In a money purchase pension plan, the defining characteristic of an individual account is that each participant bears the investment risk. This means that the contributions made by both the employer and the employee are allocated to individual accounts based on a predetermined formula, typically a set percentage of the employee's salary. The funds in these accounts are then invested, and the ultimate retirement benefit that the employee receives depends on the performance of those investments.

If the investments perform well, the account balance grows, resulting in a larger retirement benefit. Conversely, if the investments do not perform well, the account balance may be lower than anticipated, which directly impacts the retirement benefits received. This contrasts with defined benefit plans, where employers assume the investment risk and guarantee a specific retirement benefit regardless of investment performance. In a money purchase pension plan, the individual account structure ensures that participants are directly affected by their investment choices and market conditions.