Defined Benefit Plans
Defined Benefit (DB) plans offer one of the most powerful strategies for business owners and key employees to build substantial, tax-advantaged retirement savings over time.
These employer-funded plans promise a guaranteed benefit at retirement based on factors like salary and years of service. With significantly higher contribution limits than defined contribution plans, DB plans are especially effective for those seeking to accelerate retirement savings and reduce taxable income.
TRADITIONAL DEFINED BENEFIT PLANS
Traditional Defined Benefit plans provide a guaranteed benefit at retirement, typically based on compensation and years of service. Contributions are determined each year by an actuary and can vary depending on the business’s financial goals or performance—allowing greater flexibility than most fixed-limit plans.
Because contributions are based on the benefit being promised—not on annual contribution limits—employers can often make significantly larger tax-deductible contributions than with a 401(k) or profit sharing plan. This structure is especially attractive to those seeking to catch up on retirement funding in a relatively short period.
CASH BALANCE PLANS
Cash Balance plans combine the high contribution potential of a defined benefit plan with the simplicity of a defined contribution-style format. While technically a DB plan, each employee sees their benefit as an account that grows each year with a set contribution and interest credit from the employer.
All funding is provided by the employer—employees do not contribute to the plan. Cash Balance plans are a popular choice for businesses or professional practices that want to go beyond traditional plan limits while keeping things easy for employees to understand. These plans can be paired with a 401(k) to create even greater flexibility and savings opportunities.
