Defined Benefit Plans
A Defined Benefit plan is a retirement plan that’s designed to provide employees with a fixed monthly payment upon retirement. Simply put, the benefit that is defined for the employee, is the fixed retirement income.
Defined Benefit pension plans (DB Plans) are a type of pension plan with the maximum tax-deductible, retirement contributions allowed by IRS. This tax deductibility may be a strategic benefit for employers where this is a good fit. Contributions to a DB Plan take factors such as an individual’s age and her/his income to potentially contribute anywhere from $100,000 to $200,000 to the retirement account - each year!
The amount provided at retirement is generally a percentage of the employee’s salary which is determined by factors such as the employee’s age, salary, and years of service.
With defined benefit plans, the employer is responsible for all of the following activities:
- Funding the plan and making contributions based on actuarial assumptions
- Investing the plan’s funds
- Bearing all the investment risk
- Providing benefits even if the plan’s investments perform below expectations
Republic Financial Consulting helps clients and/or their businesses to establish and maintain a DB Plan. Commonly, this is a solution if one is looking to contribute significantly more to a retirement plan than the more popular Defined Contribution Plans, such as 401K's or Sep-IRA's, among others.
