Defined Benefit Plans — Gaining In Popularity?

Most people think of them as “pensions”, and while these old-school qualified retirement plans have been around and seemed to be falling out of vogue, a change in the law back in 2000 may be giving them new life. 

Defined Benefit Plans calculate an amount owed at a future time. The Department of Labor (the DOL governs qualified retirement plans) does not care if your company doesn’t have the funds to pay the future benefit when the time comes.  Legally, a company is obligated to pay the future benefit. If the company does not have the money, it will need to borrow the money in order to stay out of trouble with the DOL.  Because of this future funding requirement, Defined Benefit Plans are typically funded with guaranteed annuities.

Defined Benefit Plans — Could Be Great For Late Starters!
Generally, a Defined Benefit Plan allows for much bigger deductions for employees who are getting a late start on their retirement planning (or who have lost their plan assets in a divorce or other lawsuit).  For example, if you are 50 years old and make over $170,000 per year and you are just starting to make contributions to a newly formed Defined Benefit Plan — you could make up to $69,000 of tax deductible contributions per year. 

Because of the annual costs of the actuarial review, Defined Benefit Plans are more costly than the Defined Contribution Plan alternatives.  However, if you are over the age of 50 and do not have much in the way of retirement plan savings, the tax deductions will more than offset the additional $500-$1,500 per year in  administration costs—not to mention you will be able to save more for your retirement.

Is a Defined Benefit Plan the appropriate choice for you and your business?  If you feel the clock ticking, perhaps it’s time to give us a call for your free, no-obligation consultation at 612-202-0942. Or sign up for a consultation and tell us what your questions are, and we’ll get back to you with the answers soon.

Copyright 2007-2008 | Site Map |  Legal Disclaimer |  Privacy Policy
10541 Abbott Ave S, Bloomington, MN 55431 * 612-202-0942