Do money purchase plans require employer contributions?

Money purchase plans indeed require employer contributions, distinguishing them from other retirement plan types where employer contributions may be optional. In a money purchase plan, the employer is obligated to make fixed contributions to the plan on behalf of eligible employees, typically calculated as a percentage of the employee's compensation. This requirement ensures that employees have a predictable and reliable source of retirement income based on the contributions made by their employer.

The plan's design is meant to create a defined benefit component that fortifies the employee's retirement savings, fostering employee confidence in future financial security. Unlike some other plans where the employer has discretion over contributions, money purchase plans establish clear and mandatory funding responsibilities for the employer. This characteristic is fundamental to the structure and purpose of money purchase plans, as it aligns with the goal of providing consistent retirement benefits for participants.