A comparison of the characteristics of contributions and benefits among the three basic types of plans, profit sharing plan, money purchase pension plan and defined benefit pension plan, is presented below:
Contribution/Benefit Flexibility: This is only available with a profit sharing plan. Money purchase and defined benefit pension plans require making annual contributions in a timely manner, despite financial difficulties.
Determination of Annual Employer Contribution: Contributions can be determined by a third party pension administrator, except for a defined benefit pension plan which requires an actuary.
Contribution deduction limits: They are 15% for a profit sharing plan, 25% for a money purchase pension plan and the amount needed to fund benefits for a defined benefit pension plan.
Individual contribution/benefit limits: 25% of an individual's eligible compensation for a profit sharing plan or money purchase pension plan. For a defined benefit pension plan, the lesser of $90,000 adjusted for inflation or 100% of the average of the highest 3 consecutive years of compensation.
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