Money purchase pension plans have become less attractive under the Economic Growth and Tax Relief Act of 2001, which President Bush signed into law yesterday. The new law allows employers to claim tax deductions on defined contribution plan contributions up to 25% of an employee’s pay, up from 15%. Under old tax law, the 10% difference could be contributed to other pension plans — often money purchase plans.
"Where the money purchase plan was implemented solely to maximize the defined contribution limits, those plans will probably be terminated,” said David Wray, president of the Profit Sharing/401(k) Council of America. Sam Gilbert, a third-party administrator, said he expects all his clients with money-purchase and 401(k) plans to terminate their money purchase plans. "We see no point in double plan expenses,” said Mr. Gilbert.
