With a money purchase plan, the employer is usually committed to making annual contributions equal to a designated percentage of each employee's compensation. This percentage may not exceed 25 percent of earned income, with a maximum contribution of $30,000 per individual. The contribution percentage must be the same for all employees participating in the plan and contributions must be made even in years in which there are no net profits.
Unlike profit sharing plans, money purchase plans do not allow for integration with Social Security. Integration is the ability to set aside a larger proportion of the contribution for those earning over the Social Security maximum wage base. A combination of both profit sharing and money purchase plans provides optimal flexibility and higher contribution limits.
