Our opinion is that the defined benefit plan
has become an overlooked, underutilized planning strategy to help small-business owners reduce their income tax, diversify their wealth, reduce dependence on business equity and replace business income for their future financial stability.
Between EGTRRA and PPA, a multitude of benefits is available to business owners engaged in profit-sharing and defined benefit plans
, including the following:
While the defined benefit plan
is not the magic solution for every client, it can provide a unique opportunity for those high-income small business owners looking to reduce the sting of possible year-end tax hikes -- with the added bonus of creating a substantial retirement nest egg in just a few years.
Defined benefit plan
coverage is relatively more prevalent in the Middle Atlantic and East North Central regions, perhaps associated with certain industries or higher concentrations of union workers.
Example: If Foxx retires in 2009 at age 65, and his high three-year average compensation was $60,000, his employer's defined benefit plan
cannot provide a life or joint and survivor annuity of more than $60,000 per year.
In terms of employee appeal, defined benefit plans
are highly valued by mid-to-late-career employees, while defined contribution plans are perceived to be of higher value to younger employees.
Participants often do not understand the Defined Benefit Plan
as easily as they do other types of plans.
When the defined benefit plan
terminated, all the assets were distributed to beneficiaries; there were no surplus assets.
The defined benefit plan
produced the best pension benefit for Worker 1 who stayed in one job, and the lowest for Worker 2 who had five employers.
Federal intervention in this area is difficult to predict; however, to the extent such legislation does occur, it may make expansion of defined benefit plan
benefits less likely in the public sector.
From a national saving perspective, the most serious attack on retirement saving came with an Omnibus Budget Reconciliation Act of 1987 provision, which limited the funding companies could provide for their defined benefit plans
In an 8-to-1 decision, the Court in May 1993 ruled in favor of the government, restricting the ability of employers to make contributions of unencumbered property to a defined benefit plan