Though defined benefit plans
, in particular are on the decline in the private sector, from the perspective of pension plan members, they are considered optimal because the members know how much they will receive when they retire and the company assumes the risk of plan losses (Woodger, 2009).
The percentage of wage earners whose primary pension in 2012 was a defined benefit plan
, with 78% primarily relying upon a defined contribution plan.
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.
* 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.
"Defined benefit plans
sent a very clear message when the employee was supposed to leave the company," Noonan says.
The arrangement also provides a minimum benefit for hybrid defined benefit plans
, such as cash balance plans, which is a minimum percentage of contributions on a sliding scale that goes up by age.
For example, a defined benefit plan
might state that, starting
As defined benefit plans
, they allow for age-weighted retirement contributions and the inclusion of life insurance without a reduction in retirement benefits.
It is even possible for a defined benefit plan
to become overfunded, in which case employer contributions must be suspended for a period of time.
The more traditional retirement plan is a defined benefit plan
, which is usually funded entirely by employer contributions.
The main benefit of a defined benefit plan
for a small business owner is to reduce the owner's tax burden but there may be other significant benefits.
The state retirement plan is a final-pay, defined benefit plan
. Faculty members who are enrolled in the state plan are required to contribute 6.0% of earnings to this pension plan.