What type of contribution structure is typical for a money purchase pension plan?

In a money purchase pension plan, contributions are typically fixed and based on a percentage of each participant's salary. This method ensures that a consistent amount is contributed to the plan, which provides a predictable funding structure. The percentage may be predetermined by the employer or set by plan specifications, allowing participants to gain retirement benefits calculated on the contributions made over time.

This structured approach contrasts with other contribution plans, such as profit-sharing plans, where contributions might vary from year to year based on the company’s profits or overall financial performance. By having fixed contributions tied to salaries, participants can better anticipate their retirement savings growth over time, facilitating financial planning and security in retirement.