Also known as a money purchase pension plan. A defined contribution plan that provides for an individual account for each participant to which the employer makes contributions. Employer contributions are based on a fixed percentage of an employee's annual compensation. Benefits under a money purchase plan are generally distributed as annuity payments over the remainder of the participant's lifetime. A plan may provide for additional forms of payment.

Although they are defined contribution plans, money purchase plans are subject to the annuity rules and funding rules applicable to defined benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code (Code) (see Practice Note, Requirements for Qualified Retirement Plans: Additional Qualification Requirements for Defined Benefit and Money Purchase Pension Plans).