Defined Benefit Plans are Alive and Well

For the most part, recent headlines about Defined Benefit (DB) plans haven’t been encouraging. Stories of large companies struggling to fund these plans can make business owners hesitant. But for smaller, more mature companies, a DB plan can still be an excellent vehicle for retirement preparation.

With a Defined Contribution plan, employees contribute to their own retirement and take on the investment risk. But with a DB plan, you, the employer, contribute and assume the risk, ensuring a promised benefit to your employees at retirement, usually in the form of monthly income.

While a DB plan isn’t suitable for everyone, it can be a powerful tool for those who meet specific tax and retirement savings goals. For example, if you’ve been focused on building your business and have delayed personal retirement savings, a DB plan can help you make significant contributions to catch up, possibly even allowing for an earlier retirement.

Additionally, a DB plan can serve as an incentive for talent recruitment. While a 401(k) allows employees to invest in their retirement, a DB plan is employer-funded, offering a compelling advantage for attracting top talent.

However, businesses with stable earnings and long-term viability are best suited for DB plans, as missed contributions carry serious consequences. If a Defined Benefit plan aligns with your retirement and tax planning needs, let’s discuss whether it’s the right fit for you and your business.