Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Can someone explain a Money Purchase Pension Plan?
Old 08-08-2013, 12:43 PM   #1
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 91
Can someone explain a Money Purchase Pension Plan?

I'm considering an opportunity outside of my current company, and the have a money purchase pension plan. (In addition to a 401K). They contribute 10% each year, and then after 3 years of service, you are "fully vested in the benefit earned in the plan."

I'm not really familiar with this, all my previous employers have only had 401Ks.

From my understanding, the contribution is required by the employer and is not tied to company/employee performance. How is it invested?

If anyone is familiar with this type of plan, can you give me some basics? How is it treated from a tax perspective?
__________________

__________________
catccc is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-08-2013, 12:50 PM   #2
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,796
My understanding is it's a lump sum benefit plan, rather than a defined benefit plan. Employer puts in money - and is in charge of the investments. (You have no control)... over time the lump gets bigger. When you retire or change jobs, if you're vested, you can roll that money out into an IRA.

My megacorp replaced their defined benefit plan with this kind of "pension". It's employer provided money - so it's a good deal for the employee - but a defined benefit plan (now extinct) is better for the employee (at least that was the case at my megacorp.)

But any kind of pension, provided by an employer, is better than none.
__________________

__________________
rodi is offline   Reply With Quote
Old 08-08-2013, 02:14 PM   #3
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,092
MPPs also have to offer a QJSA annuity option

this (and other things) should be spelled out in the MPP's SPD
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 08-08-2013, 02:40 PM   #4
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
I actually have one and never understood it. I asked at a meeting with the retirement people and the counselor said "it's like a defined benefit plan wrapped around a defined contribution plan". So, the more you put in the more you get out. All I can report is what she said, so I guess one has to do their own research.

My plan is fully Federally taxable as ordinary income.
__________________

steelyman is offline   Reply With Quote
Old 08-08-2013, 02:42 PM   #5
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,092
let me see if I can find a better explanation on MPPPs

in brief, they are an employer-provided defined contribution plan that must offer an qualified joint and survivor annuity option on termination (unlike profit sharing or 401k plans)
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 08-08-2013, 02:51 PM   #6
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
Quote:
Originally Posted by Big_Hitter View Post
let me see if I can find a better explanation on MPPPs

in brief, they are an employer-provided defined contribution plan that must offer an qualified joint and survivor annuity option on termination (unlike profit sharing or 401k plans)
I think this is correct (at least in the case of my plan). I get a monthly annuity payment that allows me to post on ER.org. When I quit, I received a refund of the survivor's contribution (but you don't have to do that).
__________________

steelyman is offline   Reply With Quote
Old 08-08-2013, 02:53 PM   #7
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,092
here you go

http://leg.mt.gov/content/committees...SE%20PLANS.pdf
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 08-08-2013, 04:14 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
We had something that seems similar but I never heard it referred to as a money purchase plan.

Ours was a non-contributory DC plan that the employer contributed x% of earnings into. The percentage increased the higher that you were in the chain and peaked at 7% IIRC. Then I had to chose what it was invested in. The investment choices were the same as our 401k plan and i could move the money between investments as I wanted to. When I left the firm I had choice of leaving it, rollover to my IRA or taking it in the form of an annuity. The annuity rates were favorable so I have left it invested and plan to let it grow and convert it into an annuity later.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-13-2013, 02:19 PM   #9
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 91
Thanks for the input. Big_hitter, the link doesn't seem to be working.

If it is taxed as ordinary income, do you mean when you receive benefits? I have a hard time seeing that this is taxed if you haven't gotten anything yet (if the company has only made contributions to the plan on my behalf, and I'm not yet vested.)
__________________
catccc is offline   Reply With Quote
Old 08-13-2013, 02:23 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
FWIW, mine is just like a 401k, any benefits that I receive will be taxable as ordinary income in the year I receive them. YMMV.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-13-2013, 02:56 PM   #11
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
Quote:
Originally Posted by catccc View Post
If it is taxed as ordinary income, do you mean when you receive benefits? I have a hard time seeing that this is taxed if you haven't gotten anything yet (if the company has only made contributions to the plan on my behalf, and I'm not yet vested.)
Yes, that's what I mean. 2012 was the first year I received anything so the tax return I filed in April included 1099-R forms (never saw those before).
__________________

steelyman is offline   Reply With Quote
Old 08-13-2013, 03:01 PM   #12
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 91
Quote:
Originally Posted by steelyman View Post
Yes, that's what I mean. 2012 was the first year I received anything so the tax return I filed in April included 1099-R forms (never saw those before).
Ah, I see in your signature that you retired in Oct-12. Dreamy. Congrats!

So as the contributions were made, no tax impact, then?
__________________
catccc is offline   Reply With Quote
Old 08-13-2013, 03:03 PM   #13
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
Quote:
Originally Posted by catccc View Post

Ah, I see in your signature that you retired in Oct-12. Dreamy. Congrats!
Thank you!
__________________

steelyman is offline   Reply With Quote
Old 08-13-2013, 03:11 PM   #14
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
Quote:
Originally Posted by catccc View Post
So as the contributions were made, no tax impact, then?
Correct. They did, however, deduct a percentage of everyone's salary each pay period which went to the pension plan.
__________________

steelyman is offline   Reply With Quote
Old 08-13-2013, 03:56 PM   #15
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,092
Quote:
Originally Posted by catccc View Post
Thanks for the input. Big_hitter, the link doesn't seem to be working.
weird, works for me - try compatibility mode?
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 08-13-2013, 06:16 PM   #16
Full time employment: Posting here.
SumDay's Avatar
 
Join Date: Aug 2012
Posts: 799
Money-Purchase Pension Plan Definition | Investopedia
__________________
SumDay is offline   Reply With Quote
Old 08-13-2013, 06:52 PM   #17
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
SumDay - I think most people can use Google. What's nice is when a member takes the time to filter relevant excerpts and posts that.
__________________

steelyman is offline   Reply With Quote
Old 08-16-2013, 08:06 AM   #18
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 91
Sum Day, thanks, I actually did read that investopedia bit before I posted over here, because I didn't think it really explained it enough for me.

So this pension is 100% company funded, but it is a defined contribution plan.

Steelyman, I'm going to guess that the portion that was deducted from your paycheck for the pension was not taxable, like a traditional 401K contribution?

So would it be reasonable to included the company contributions as part of your retirement stash once you are vested?
__________________
catccc is offline   Reply With Quote
Old 08-16-2013, 09:59 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
A traditional (pre-tax) 401k contribution is taxable when withdrawn from the 401k since it reduces taxable earnings when the contribution is made.

If the contributions steelyman made to his plan did not reduce his taxable earnings when the contributions were made (ie; were after-tax contributions) then typically a portion of each distribution would be taxable and a portion would not be (similar to an annuity benefit payment).

My plan was similar to yours, 100% company funded, so when I take withdrawals will be 100% taxable, like my (pre-tax) 401k withdrawals.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-16-2013, 10:17 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,250
Quote:
Originally Posted by catccc View Post
Sum Day, thanks, I actually did read that investopedia bit before I posted over here, because I didn't think it really explained it enough for me.

So this pension is 100% company funded, but it is a defined contribution plan.

Steelyman, I'm going to guess that the portion that was deducted from your paycheck for the pension was not taxable, like a traditional 401K contribution?

So would it be reasonable to included the company contributions as part of your retirement stash once you are vested?

It might or might not be a defined contribution plan.... my old mega's plan is a defined benefit plan.... I did not know until someone on this board suggested it might be and I actually looked... they converted the old DB plan somehow where it looks like a DC plan...
__________________

__________________
Texas Proud is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 08:37 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.