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
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