Money Purchase Retirement Plan — What It Is & Why It Matters
by Mark Briggs - December 2025 (Updated Sep. 2026)
A Money Purchase Retirement Plan (MPRP) is a type of defined contribution pension arrangement. Instead of promising a specific retirement income, the plan builds an individual retirement account through contributions and investment earnings.
The terminology varies by country. In Canada, a money purchase plan is generally another name for a defined contribution pension plan. In the United States, a money purchase pension plan is a specific type of defined contribution qualified retirement plan.
What Is a Money Purchase Retirement Plan?
A Money Purchase Retirement Plan is a defined contribution retirement plan in which contributions are established by the plan rather than the retirement benefit being predetermined.
In Canada, the Canada Revenue Agency describes a money purchase provision as one in which employer and employee contributions are credited to each member's account and retirement benefits are based on the accumulated contributions and investment earnings.
The Office of the Superintendent of Financial Institutions (OSFI) likewise describes defined contribution plans as plans in which the retirement benefit depends largely on contributions and investment income. Defined contribution plans are sometimes called money purchase plans.
In the United States, a money purchase pension plan is a defined contribution plan that generally requires the employer to make contributions according to the formula established in the plan document.
Key Features
- Defined contributions: The plan establishes the contribution formula rather than guaranteeing a particular retirement income.
- Individual accounts: Contributions and investment earnings are generally tracked for each plan member.
- Investment growth: The account value changes as investments gain or lose value.
- Investment risk: Unlike a traditional defined benefit pension, the member's retirement benefit is generally affected by investment performance.
- Retirement options: Depending on the country, plan and applicable legislation, a member may have options such as an annuity, transfer to another retirement vehicle, or other permitted forms of retirement income.
How Does a Money Purchase Plan Work?
Imagine you work for an employer that contributes 8% of your annual salary to a money purchase plan. If your salary is $80,000, an 8% contribution would be $6,400 for that year.
If the contribution continues for many years, the account can become substantial. Investment returns can increase the balance through compounding, while market losses can reduce the balance.
The important point is that the contribution is defined, but the eventual retirement benefit is not necessarily fixed.
Employer and Employee Contributions
The exact contribution rules depend on the plan document and the jurisdiction.
Some money purchase plans require employer contributions. Others may permit or require employee contributions as well. In Canada, both employer and employee contributions can form part of a money purchase provision.
In the United States, the employer contribution formula for a money purchase pension plan is established in the plan document and generally must be followed.
Investments and Risk Exposure
Contributions may be invested in mutual funds, exchange-traded funds, target-date funds, bonds, stocks or other investments permitted by the plan.
Because the retirement benefit depends on the accumulated account, investment performance matters. A longer investment period can provide more opportunity for compounding, but it also exposes the account to market fluctuations for a longer period.
Money Purchase Plan vs. Defined Benefit Pension
The biggest difference between a money purchase plan and a defined benefit pension is what is defined.
| Feature | Money Purchase / Defined Contribution | Defined Benefit |
|---|---|---|
| What is defined? | Contributions | Retirement benefit formula |
| Retirement balance | Depends on contributions and investment results | Generally calculated using the plan's benefit formula |
| Investment risk | Generally borne by the member | Generally borne by the plan sponsor |
| Individual account | Generally yes | Generally no individual investment account |
| Retirement income | Depends on accumulated assets and available options | Determined under the pension formula |
A defined benefit pension is designed around a promised benefit formula. A money purchase or defined contribution plan instead establishes contributions, with the eventual retirement benefit depending on the resulting account.
Money Purchase Plan vs. Group RRSP and 401(k)
Money purchase plans can look similar to other defined contribution retirement arrangements, but the legal and tax rules are different. The name of the plan alone does not determine the available contribution, withdrawal or transfer options.
| Plan | Basic Structure | Investment Risk | Rules |
|---|---|---|---|
| Money Purchase Plan | Defined contributions to a pension account | Generally member bears investment risk | Depends on jurisdiction and plan rules |
| Group RRSP | Employer-sponsored RRSP arrangement | Generally member bears investment risk | Canadian RRSP rules |
| 401(k) | U.S. employer-sponsored defined contribution plan | Generally member bears investment risk | U.S. tax and retirement-plan rules |
| Defined Benefit Pension | Retirement benefit determined by a formula | Generally plan sponsor bears investment risk | Applicable pension legislation and plan rules |
Contribution Limits and Rules
Contribution limits are highly dependent on the country and plan structure.
United States
For 2026, the annual additions to a participant's account in a defined contribution plan generally cannot exceed the lesser of 100% of compensation or $72,000, subject to the applicable rules and additional catch-up contributions.
The IRS also states that an employer's deduction for contributions to a defined contribution plan, including a money purchase pension plan, generally cannot exceed 25% of compensation paid or accrued to eligible participating employees. This is an employer deduction rule, not simply a statement that every employee can receive a 25% contribution.
Canada
Canadian money purchase plans are subject to the rules governing registered pension plans. The 2026 money purchase limit is $35,390. This limit is used in determining pension adjustments and related registered-plan limits; it is not simply a universal statement that every Canadian employee can contribute $35,390 to a pension plan.
Participation in a Canadian registered pension plan can also affect future RRSP contribution room through the pension adjustment (PA) system.
Because Canadian pension regulation can be federal or provincial, the exact rules for contributions, vesting, locking-in and transfers depend on the plan and applicable legislation.
Advantages of a Money Purchase Retirement Plan
Money purchase plans can provide several important retirement-saving benefits.
- Employer contributions: Employer-funded contributions can significantly increase the amount being saved for retirement.
- Automatic saving: Contributions are generally made through the retirement plan rather than requiring the employee to make every investment decision independently.
- Tax advantages: Registered retirement plans can provide tax deferral or other tax advantages under the applicable country's rules.
- Compounding: Contributions and investment earnings can compound over many years.
- Investment choice: Many plans offer several investment options, although the choices depend on the plan.
- Portability in some circumstances: Depending on the jurisdiction and plan rules, retirement assets may be transferable when employment ends.
Disadvantages and Limitations
Money purchase plans also have limitations that should be considered when estimating retirement income.
- No predetermined retirement benefit: The eventual account value depends on contributions and investment performance.
- Investment risk: Market declines can reduce the account balance.
- Longevity risk: A member must consider how to turn accumulated savings into sustainable retirement income.
- Plan restrictions: Investment choices, withdrawals and transfers may be restricted by the plan and applicable law.
- Employer obligations: Employers may have significant administrative and funding responsibilities associated with maintaining the plan.
Who Can Benefit From a Money Purchase Plan?
A money purchase plan can be particularly important for employees whose employers make meaningful retirement contributions.
- Employees receiving substantial employer contributions.
- Long-term employees who can benefit from years of compounding.
- Investors who understand that their retirement balance will fluctuate with investment performance.
- People who want retirement savings integrated into their workplace benefits.
- Employees who want to supplement government benefits and other retirement savings.
Real-World Example — How an MPRP Could Build a Retirement Account
Consider Jane, age 35, who earns CAD $85,000 and whose employer contributes 8% of salary to a money purchase pension plan.
Her first-year employer contribution would be:
$85,000 × 8% = $6,800
If the employer contribution continued at the same percentage for 30 years, Jane would receive more than $200,000 in contributions before considering investment growth, salary increases, employee contributions or changes to the plan.
If her salary increases over time and the account earns investment returns, the final balance could be considerably higher. However, investment returns are not guaranteed, so retirement projections should be treated as estimates rather than promises.
Fun Facts
- In Canada, defined contribution pension plans are sometimes called money purchase plans.
- Canada's 2026 money purchase limit is $35,390.
- The U.S. 2026 annual-additions limit for many defined contribution plans is $72,000 before applicable catch-up contributions.
- In a money purchase plan, investment performance can have a major effect on the retirement account because the benefit is tied to accumulated assets.
- A large employer contribution can become especially valuable when it compounds over several decades.
When a Money Purchase Plan Isn't Enough
A workplace pension is only one part of a retirement-income plan. Depending on your circumstances, you may also have government benefits, personal retirement accounts, taxable investments, real estate income or other sources of cash flow.
Canadians may coordinate a money purchase pension with CPP, OAS, RRSPs, TFSAs and other investments. U.S. workers may coordinate their workplace plan with Social Security, IRAs and taxable investments.
The important question is not simply how large the pension account becomes, but how all of your retirement income sources work together.
At Retirement — What Are Your Options?
Your available options depend heavily on your country, pension legislation, plan document and the circumstances under which you leave the plan.
- Lifetime annuity: In some circumstances, accumulated assets can be used to provide regular lifetime income.
- Transfer: Depending on the jurisdiction, assets may be transferred to an eligible retirement account or locked-in retirement vehicle.
- Retirement withdrawals: Some plans and jurisdictions permit withdrawals under specified rules.
- Leave assets in the plan: In some circumstances, former employees may be able to leave their pension assets in the existing plan.
Do not assume that a pension account can simply be withdrawn as cash. Pension assets can be subject to locking-in, minimum standards and tax rules that vary by jurisdiction.
Should Small Business Owners Consider a Money Purchase Plan?
A money purchase pension arrangement may be useful for some employers and employees because contributions can be established through a defined formula.
However, business owners should consider the contribution obligations, administrative requirements, employee eligibility, investment structure and applicable pension and tax rules before establishing a plan.
The right retirement plan depends on factors such as business size, employee demographics, desired contribution levels and the owner's retirement objectives.
How to Evaluate If Your Money Purchase Plan Will Be Enough
- Determine the current account balance.
- Calculate current employer and employee contributions.
- Estimate future salary and contribution growth.
- Use a range of reasonable investment-return assumptions.
- Consider inflation and future purchasing power.
- Estimate when retirement income will begin.
- Consider how long the retirement savings may need to last.
- Add CPP, OAS, Social Security or other pension income where applicable.
- Test different retirement-spending scenarios.
The goal is to turn the pension account balance into a retirement income plan rather than simply focusing on the size of the account.
Frequently Asked Questions
Is a Money Purchase Plan the same as a defined contribution plan?
In Canada, the terms are commonly used interchangeably. A money purchase provision is a type of defined contribution pension arrangement. In the United States, a money purchase pension plan is specifically a type of defined contribution qualified retirement plan.
Can I contribute personally to a Money Purchase Plan?
It depends on the plan. Some plans allow or require employee contributions, while others are primarily employer-funded. The plan document determines the applicable contribution requirements.
What happens if I switch jobs?
Your options depend on the pension jurisdiction and plan rules. You may be able to leave the money in the existing plan, transfer it to another eligible retirement vehicle, or select another permitted option.
Is the retirement benefit guaranteed?
Generally, no. Unlike a defined benefit pension, a money purchase plan normally does not promise a predetermined retirement income. The eventual benefit depends on contributions, investment earnings and the retirement-income option selected.
Is a Money Purchase Plan better than a Group RRSP or 401(k)?
These plans serve different purposes and are governed by different rules. The comparison depends on contribution levels, employer contributions, investment choices, fees, tax treatment and retirement options.
Does a Canadian pension affect my RRSP contribution room?
Generally, yes. Participation in a registered pension plan can create a pension adjustment that reduces RRSP contribution room for the following year. Your actual RRSP deduction limit is determined by the Canada Revenue Agency.
Conclusion
A Money Purchase Retirement Plan can be an important part of a long-term retirement strategy. Instead of promising a specific pension payment, the plan builds retirement assets through defined contributions and investment growth.
The major advantage is the ability to build a substantial retirement account through consistent contributions, particularly when an employer contributes a meaningful percentage of salary. The major consideration is that investment performance and other factors can affect the eventual retirement income.
To understand whether your money purchase pension will provide enough retirement income, combine the projected pension balance with your other retirement savings and expected government or pension benefits.
