What is an essential feature of a money purchase plan?

A money purchase plan is characterized as a defined contribution retirement plan where an employer makes fixed contributions to each employee's account each year regardless of the company's profits or individual employee performance. This means that the contributions are predetermined and specified in the plan, typically expressed as a percentage of the employee's salary.

As such, employees can rely on receiving a specific benefit based on these contributions upon retirement, without the variability that may come from investment returns, discretionary employee contributions, or profit-sharing arrangements. This fixed nature of contributions allows for a predictable accumulation of retirement savings over time, distinguishing it clearly from other types of retirement plans where benefits might fluctuate.