Defined Contribution Plans

Money Purchase Pension Plan

• Individual participant accounts
  Employer typically contributes a set percentage of salary
• Employees may contribute (after-tax)
  Pre-tax employee contributions possible for public sector employees
• Retirement benefits determined by accumulated contributions and earnings
• Contributions may be off-set by social security taxes
• Forfeitures use to reduce employer contributions
• Favorable to short term and younger employees
• Nondiscrimination rules generally apply to private sector employers
• Same benefit distribution rules as defined benefit plans
• Assets held in tax exempt trust and invested by Trustees in stocks, bonds, and short-term cash management
• Employees bears investment risk
  

Profit Sharing Plan

• Individual participant accounts
• Employer contributes discretionary amounts
• Contributions may be off-set by social security taxes
• Employees may contribute (after-tax)
• Forfeitures usually shared among participants
• Participant loans are allowed
• Favorable to younger and short term employees
• Non discrimination rules generally apply to private sector employers
• Very flexible withdrawal and distribution provisions permissible
• Assets are held in tax-exempt trust (stocks, bonds, short-term cash management, etc.)
• Employees bear investment risk

Questions?