Defined Benefit Plans
A defined benefit pension plan is a type of pension plan in which an employer/sponsor pledges a specified monthly benefit that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.
Defined benefit plans can be an excellent option for companies with employees who are approaching retirement who wish to accumulate assets rapidly, or for companies that value the benefit and have the ability to make higher than average contributions.
Benefits Include:
Accumulation – Lifetime defined benefit accumulation limit is approximately $2 million.
Tax Deductions – Contributions to an individual defined benefit plan are a deductible business expense and offer the largest deductions available under current tax laws.
Investment Options – The investment committee has greater flexibility in making investment decisions than with other retirement plan designs.
Asset Protection – Plan assets may be protected from creditors under current federal guidelines.
High Benefit Limits – Maximum retirement benefit of 100 percent of average compensation for the three consecutive years in which the participant's compensation was the highest, up to a maximum of $225,000 for 2019 ($220,000 for 2018).
Known Benefit Amount – Unlike with defined contribution plans such as 401(k) s, employees know how much they will receive at retirement.
Ability to Combine with Defined Contribution Plans – Can contribute maximum allowed amounts to a defined contribution plan and still fund a defined benefit plan.