Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, self-employed can establish a Defined Benefit Plan.
You set the eligibility requirements at the time the plan is established. If they wish, the employer can restrict individuals with less than 2 year service, union members, non US citizens, part-time workers etc., from being eligible for the plan.
The Defined Benefit Plan is established so that the amount of the employee's retirement income is fixed, defining the benefit in advance by the plan's benefit formula.
The employer's contribution must be determined actuarially and be sufficient to enable the plan fund to meet its liabilities as they come due in future years.
A Defined Benefit Plan's assets are not allocated to individual accounts.
- Employer must meet minimum funding requirements, dictated by the benefit formula and calculated annually by an actuary.
Key Features of Defined Benefit Plan: (1) offers very large deductions, (2) can produce a substantial retirement fund in a few years, (3) provides large fixed annual benefit, and (4) is popular for older individuals with stable incomes who are relatively close to retirement.
Depending on income levels, a Defined Benefit Plan can provide one of the highest tax deductible contribution limits.
Plan has full ERISA requirements and annual IRS 5500's series of filings.
Procedures are available for fully funded Defined Benefits Plans to be terminated and rolled into other less expensive, less administratively complex and perhaps more appropriate and efficacious retirement plans.
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Additionally, procedures are available for under funded Defined Benefits Plans to be frozen in place and alternatives instituted to mitigate the future liability problem associated with under funded plans.
As of January 1st 2001, Defined Benefit Plans can be coupled with Money Purchase Plans or Profit Sharing Plans.
Defined Benefit Plans can be coupled with 401k plans under certain situations.
Typically these plans require the services of outside 3rd party administrators whose fees for services vary widely.
A wide range of investment funding choices is available for these type plans.
All Mutual Funds, Variable Annuities and Variable Life Insurance policies are offered by prospectus ONLY. For complete information including charges and expenses obtain a prospectus, and read it carefully before you invest.
Mutual Fund, Variable Annuity and Variable Life prospectuses are available directly from the issuing companies when product information is requested, and in some cases, they can be downloaded directly on the issuing company's internet website.
The tax deferral characteristic associated with variable annuities is not needed when used in an account that is by definition tax deferred (retirement accounts) and according to some sources variable annuities generally have higher fees and internal expenses than mutual funds.
Systematic and dollar cost averaging within Mutual Funds, Variable Annuities and Variable Life insurance policies does not assure a profit and does not protect against loss in declining markets. It involves continuous investment in securities regardless of fluctuating prices and the investor should consider his or her financial ability to continue purchases through periods of low price levels. Investing in stocks, bonds, mutual funds and variable annuities does not guarantee a profit.
All of these investments can lose money.
Stocks, bonds, mutual funds and variable annuities are not FDIC insured.
