What type of qualified plan involves fixed contributions based on an employee's salary?

A money purchase plan involves fixed contributions that are determined as a percentage of an employee's salary. In this type of qualified retirement plan, the employer is required to contribute a specified amount or percentage of each participating employee's pay, regardless of the company's profit levels. This ensures that contributions are predictable and consistent from year to year, making it easier for employers to plan their budgets.

In contrast, a 401(k) plan allows employees to contribute a portion of their salary toward their retirement, sometimes with an employer match, but does not mandate fixed contributions from the employer. A profit-sharing plan allows for variable contributions based on the company's earnings, meaning there is no fixed amount dictated by an employee's salary. Defined benefit plans, on the other hand, provide a predetermined benefit at retirement, which is based on factors such as salary history and duration of employment, rather than on fixed contributions tied to salary.

This distinction is crucial as it highlights the nature of contributions and how they align with an employee's compensation, underscoring why a money purchase plan specifically incorporates fixed contributions related to salary.