For the most part, the news about Defined Benefit plans lately has not been particularly good. Whether a big company could no longer fund its plan or how it was bankrupting their business, headlines have discouraged many businesses from seriously considering a DB plan.
But we believe it’s time to take another look. For smaller, more mature companies, a DB plan can be a great vehicle to help you and your employees prepare for retirement. With a Defined Contribution plan, it’s your employees who make many of the contributions and take on the investment risk. Their retirement benefit is their accumulated balance. With a Defined Benefit plan, you, as the plan sponsor, makes the contributions and assumes the risk. Your employees receive a promised benefit at retirement, typically in the form of monthly income.
A DB plan isn’t for everyone, but you may find that type of plan may help you meet your tax and savings goals. For example, if you’ve been focused on building your company but have pushed off saving for retirement, a DB plan can be a tool to help you make up for lost time with substantial contributions. It may even help you retire early if that’s something you’re considering.
You can also use a DB plan as an incentive to attract new talent. While a 401(k) plan allows employees to contribute to their retirement savings, a DB plan is your responsibility to fund. This can present a competitive advantage if you’re needing to recruit and retain top talent.
But only businesses that have predictable earnings and long-term viability should consider a Defined Benefit plan because there are consequences if required contributions are missed.
If a Defined Benefit plan sounds like it might solve some of your retirement and tax planning issues, let’s talk and determine if it’s a good fit for you and your business.