Which of the following correctly describe differences between a profit-sharing plan and a money purchase plan?
I. An employer can elect to make no contribution to a profit-sharing plan in a bad year, but the employer must make contributions to a money purchase plan, regardless.
II. Only employers make contributions to profit-sharing plans whereas both employers and employees can contribute to a money purchase plan.
III. A profit-sharing plan is a defined benefit plan whereas a money purchase plan is a defined contribution plan.
Explanation
Answer: B - Selections I and II correctly describe differences between a profit-sharing plan and a money purchase plan. Under a profit-sharing plan, an employer can elect to make no contribution in a bad year, but an employer must make contributions to a money purchase plan, regardless. Only employers make contributions to profit-sharing plans, but both employers and employees can contribute to a money purchase plan. Both profit-sharing plans and money purchase plans are defined contribution plans, so the statement made in Selection III is false.
