Money Purchase Retirement Plan — What It Is & Why It Matters
by Mark Briggs - December 2025
A Money Purchase Retirement Plan (MPRP) is a type of employer-sponsored defined contribution plan in which the employer makes fixed contributions annually on behalf of each eligible employee. You don’t get a guaranteed payout, but you build a retirement “pot” that grows over time based on investments — and that pot can make a big difference for your golden years. If you’ve ever wondered how to maximize employer retirement benefits while still having flexibility, this guide is for you.
What is a Money Purchase Retirement Plan?
A Money Purchase Retirement Plan, sometimes called a “money purchase pension plan” or MPRP, is a type of defined contribution pension plan where the employer is required to make a set, predictable contribution each year for each eligible employee. Learn more from Investopedia.
Unlike a defined benefit pension (where retirement income is pre-determined by a formula), with an MPRP the benefit at retirement depends on contributions and investment performance. Additional details can be found via the IRS retirement plan guide.
Key Features
- Employers must contribute annually, usually a fixed percentage of your salary (U.S. Dept. of Labor).
- Each employee has an individual account holding contributions and investment gains.
- At retirement, you may choose lump sum, annuity, or transfers depending on the jurisdiction (Government of Canada Pension Rules).
- The final account balance depends on time, contributions, and investment performance.
How a Money Purchase Plan Works
Imagine you work for a company that offers an MPRP and promises to contribute 8% of your annual salary into the plan each year. If your salary is $80,000, that means $6,400 goes into your retirement account this year. Over 30 years, even without investment growth, that's significant — and with growth, your nest egg can multiply.
Funds in defined contribution pension plans typically grow tax-deferred. Rules vary, but in Canada DC plans follow tax-deferral principles similar to RRSPs (Employer-Sponsored Pensions).
Employer and Employee Contributions
Employers must contribute according to plan terms. Some plans allow (or require) employee contributions, but the employer's fixed contribution is the central feature of an MPRP.
Investments and Risk Exposure
MPRPs invest contributions into mutual funds, target-date funds, or asset allocation funds. Employees bear investment risk — meaning market fluctuations affect the final retirement balance.
Money Purchase Plan vs Other Retirement Plans
It helps to compare MPRPs with other common retirement plans to see strengths and trade-offs:
| Plan Type | How It Works | Retirement Benefit | Flexibility |
|---|---|---|---|
| Money Purchase Plan | Fixed employer contributions + optional employee contributions | Depends on contributions + investment performance | High — lump sum, annuity, or transfer options |
| Defined Benefit Pension | Employer-managed fund promises a fixed payout formula | Pre-determined pension based on salary & years worked | Lower — usually monthly pension checks |
| Group RRSP / Group DC Plan | Employer or employee contributes; may match contributions | Depends on contributions + investment performance | High — similar flexibility to MPRP |
MPRPs are similar to group DC pensions where contributions are defined, and employees choose how funds are invested. More comparisons are available via Investopedia’s retirement plan comparison.
Defined benefit plans guarantee future payouts but offer less flexibility. Learn more at Pension Rights Center.
Contribution Limits and Rules
In the U.S., employer contributions to money purchase plans cannot exceed 25% of compensation or the IRS annual dollar maximum (IRS contribution limits).
In Canada, defined contribution pension contributions follow provincial or federal pension rules (OSFI DC Pension Rules).
Advantages of a Money Purchase Retirement Plan
MPRPs come with several compelling benefits:
- Employer-funded contributions: This ensures consistent saving.
- Tax-deferred growth: Similar to RRSPs or 401(k)s, investment growth compounds without annual taxes.
- Flexible retirement options: Lump sums, annuities, or transfers depending on rules.
- Potential for large savings: High contribution limits over decades produce strong balances.
- Automatic discipline: You save without needing to think about it.
Disadvantages and Limitations
Drawbacks include:
- No guaranteed income: Unlike defined benefit pensions.
- Investment risk: Employees bear the risk of market volatility.
- Employer cost: Fixed yearly contributions may be burdensome during downturns.
- Administrative work: More complex than simpler savings vehicles.
Who Benefits Most from a Money Purchase Plan
- Long-term employees.
- People wanting employer-funded retirement savings.
- Those comfortable with investment risk.
- Individuals who prefer flexible retirement income options.
- People wanting automated savings.
Real-World Example — How MPRP Could Build a Nest Egg
Jane, age 35, earns CAD $85,000. Her employer contributes 8% yearly. At 2% salary growth and 5% investment growth:
- Year 1 contribution: $6,800
- 30 years contributions: $204,000+ (before growth)
- With compounding, her account could reach several hundred thousand dollars.
Fun Facts
- MPRPs are a type of defined contribution pension plan.
- The U.S. contribution limit was $66,000 in 2023 (IRS).
- MPRPs offer investment flexibility — but also market exposure.
- Retirees can choose lump sum, annuity, or transfer options.
- Employer-funded contributions feel like “free money.”
When a Money Purchase Plan Isn’t Enough — Consider Complementing It
Use your MPRP along with RRSPs, personal investments, and pensions to build a complete retirement plan. Tools like the Retirementize Online Retirement Income Calculator help you picture multiple income streams working together.
Contribution Limits & Regulatory Rules
Contribution limits differ by country. In the U.S., employer contributions are capped at 25% of compensation or an annual limit. Canada has similar rules under federal/provincial pension laws.
At Retirement — What Are Your Options?
- Lump sum withdrawal
- Annuity purchase: Create guaranteed lifetime income.
- Transfer: Move money to an IRA, LIRA, LIF, etc. depending on jurisdiction.
Should Small Business Owners Use an MPRP?
Small businesses may find MPRPs attractive due to predictable contributions and tax benefits. They can also supplement personal retirement accounts for better long-term planning. Use the Retirementize calculator to test different scenarios.
How to Evaluate If Your MPRP Will Give You Enough for Retirement
- Estimate future contributions.
- Forecast salary growth.
- Project investment returns.
- Consider withdrawal strategy.
- Add other retirement income sources.
Then enter your data into the Retirementize Online Retirement Income Calculator for a personalized projection.
Frequently Asked Questions
Is a Money Purchase Plan the same as a defined contribution plan?
Yes — MPRPs are a type of DC plan.
Can I contribute personally to a Money Purchase Plan?
Some plans allow employee contributions, though employer contributions define the plan.
What happens if I switch jobs?
Typically you can transfer your account to another registered retirement account, such as an IRA or LIRA/LIF.
Is the retirement benefit guaranteed?
No — benefits depend on investment performance.
Is a Money Purchase Plan better than a group RRSP or 401(k)?
It depends on employer contributions and plan design.
Conclusion
A Money Purchase Retirement Plan is a powerful employer-funded savings tool. It offers tax advantages, flexibility, and long-term growth potential, but carries investment risk. It’s ideal for long-term employees wanting predictable savings and flexible retirement options.
To find out how your MPRP fits into your retirement income picture, test your numbers using the Retirementize Online Retirement Income Calculator.