"Professional Planning Consultants"
"Professional Planning Consultants"
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Defined Benefit Plans A defined benefit plan provides a predetermined, level of benefit payments for the life of the participant or the life of the participant and spouse. The monthly retirement benefit is calculated using a formula specified in the plan. The employer contribution is required annually and is typically higher than a defined contribution plan, depending on the employer's demographics. The employer bears the investment risk. Older employees tend to be favored because they have a shorter time to fund for their retirement. Types of Defined Benefit Plans: A. Traditional Defined Benefit Plan: The employer makes an annual tax-deductible contribution to the plan. Tax deductions are subject to Internal Revenue Code limitations. This amount is actuarially determined each year and is usually a formula based on a combination of compensation and years of service. The plan is funded entirely by the employer and annual contributions are required. B. 412(i) Defined Benefit Plan: The 412(i) plan, also known a fully insured plan, offers retirement benefits with insurance products that provide a guaranteed minimum rate of interest. The plan may be funded using life insurance and annuity products or annuities only. A 412(i) plan has less flexibility than a traditional defined benefit plan, but this enables the plan to provide the maximum tax deduction available under any qualified plan. Policies must remain in force, requiring annual premium payments. Participant loans are not permitted. Plan funding is expected on the first day of each plan year.
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