Defined Benefit Plans

A Defined Benefit Plan is a plan for which benefits tomorrow are defined.

Defined
Benefit
Plans

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Proft-Sharing plan with employees and employers

A Defined Benefit Plan is a plan for which benefits tomorrow are defined. It is not an individual account plan. All plan assets must be pooled. A Defined Benefit Plan doesn’t maintain account balances to reflect participants’ accrued benefits. Participants’ accrued benefits are determined by a formula stated in the Plan Document, which generally takes compensation and service into consideration. The annual contribution is calculated by an Enrolled Actuary. The contribution is an obligation on the part of the employer and can change from year to year. The employer bears the investment risk.

Upon retirement or separation from service, participants have the right to distribute their accrued benefit in either a lump sum present value or some form of guaranteed annuity. The plan will define in which form, and when, a participant’s benefit may be distributed. If the plan allows lump sum distributions, the vested present value of the accrued benefit can be rolled over to an IRA, or taken in cash (with attendant taxes and penalties). Alternatively, participants can choose to:

• Receive current payments in the form of an annuity
• Receive payments in the form of an annuity at a time beginning in the future
• Defer a decision altogether

Retirement Nest Egg

defined benefit Blogs