A money purchase pension plan is another type of defined contribution plan.
The difference from a profit sharing plan, is that with a money purchase plan, the employer makes a commitment to contribute to the plan each year for each eligible employee. The contribution is based on the contribution formula specified in the plan document.
Failure to meet the contribution requirements of a money purchase plan will result in a deficiency for which the plan sponsor would be penalized. An example of a contribution formula is 10% of compensation payable to all eligible participants.
The maximum contribution under a money purchase plan is 25% of the total compensation of the employees participating in the plan. Remember though, the maximum contribution an individual participant can receive is the lesser of 100% of the participant's compensation or the 2014 dollar limit of $52,000.