Defined
Benefit

Defined benefit plan provides a fixed benefit upon retirement for your employees based on a set formula. They won’t be contributing, but you will be making regular contributions which are deductible. The benefits can generally be higher than other types of plans and accrue faster, however it may take more effort during setup.

If you establish a defined benefit plan, you:

Can have other retirement plans
Can be a business of any size
Need to annually file a Form 5500 with a Schedule B
Have an enrolled actuary determine the funding levels and sign the Schedule B
Can’t retroactively decrease benefits

Pros and Cons

Substantial benefits can be provided and accrued within a short time – even with early retirement
Employers can contribute (and deduct) more than under other retirement plans
Plan provides a predictable benefit
Vesting can follow a variety of schedules from immediate to spread out over seven years
Benefits are not dependent on asset returns
Plan can be used to promote certain business strategies by offering subsidized early retirement benefits
Most costly type of plan
Most administratively complex plan
An excise tax applies if the minimum contribution requirement is not satisfied
An excise tax applies if excess contributions are made to the plan

Contributors

Generally, the employer makes most contributions. Sometimes, employee contributions are required or voluntary contributions may be permitted.

Defined Benefit Plan Limits

Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.
In general, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:

100% of the participant’s average compensation for his or her highest 3 consecutive calendar years, or
$220,000 for 2018 ($215,000 for 2017)

Pension Maximization Using Life Insurance

Help to achieve financial security while maximizing your pension benefits.

Pension maximization using life insurance is a way to gain needed death benefit protection while offering you an opportunity to maximize your defined pension benefits. If you are a participant in a traditional pension plan (also referred to as a “defined benefit plan”), you have a plan that is designed to provide you with monthly income payments upon retirement. First however, you must make an irrevocable choice. Typically, your employer will give you two options for how the benefits will be paid – Life Only Benefit or Joint and Survivor Benefit. The Life Only option pays you the maximum benefit, but upon your death, your spouse does not continue to receive payments. The Joint and Survivor option pays a reduced benefit, but your spouse will continue to receive benefits when you die. The pension maximization strategy using life insurance is designed to be a compromise between the two options. It allows you to receive the higher pension benefit while also providing funds for your spouse in the form of a death benefit.