Simple English definitions for legal terms
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A money-purchase plan is a type of employee benefit plan that is written for employees, officers, and advisers of a company. It can include various plans such as stock-purchase, savings, option, bonus, stock-appreciation, profit-sharing, thrift, incentive, pension, or similar plans. The plan requires mandatory employer contributions without regard to employer profits, and contributions are frequently stated as a percentage of employee compensation.
These examples illustrate how a money-purchase plan works by requiring the employer to make mandatory contributions to the plan, which are usually a percentage of the employee's salary. The plan can also include additional contributions based on the company's profits or other factors. The contributions are invested and accumulate over time, and the employee receives the benefits upon retirement or other qualifying events.