The contribution to a money purchase pension plan is fixed by the formulas stated in the plan document. The amount of the contribution is expressed as a percentage of the annual compensation of all of the employees covered by the plan. The maximum percentage allowed in this type of plan is 25% of compensation. Additionally, the dollar amount which may be contributed on behalf of any one participant is limited by law. The limitation for 2016 is $53,000.
In this type of plan a separate account is maintained for each participant. Investment gains or losses are allocated annually to all participant accounts in ratio to each account balance. The participant's benefit is the total amount of his vested account balance attributed to contributions and investment earnings.
If a participant terminates employment before his or her account is fully vested, the non vested portion is forfeited and the amount of the forfeiture is credited toward the next year's contribution or allocated to the remaining participants depending on the specific plan provision.