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Understanding Defined Benefit Plans
A defined-benefit plan is an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as length of employment and salary history. The company is responsible for managing the plan's investments and risk and will usually hire an outside investment manager to do this.
Typically an employee cannot just withdraw funds as with a 401(k) plan. Rather, they become eligible to take their benefit as a lifetime annuity or in some cases as a lump sum at an age defined by the plan's rules.
Defined Benefit and Defined Contribution Plan: Benefits
| Benefits of a Defined Benefit Plan (e.g., a Pension) | Benefits of a Defined Contribution Plan (e.g., a 401[k]) |
|---|---|
| Predictability You know exactly what amount of income you will receive upon retirement. This can be a great comfort, especially for those who appreciate certainty. | Control You decide how much to contribute, and often, how your money is invested. This allows you to take a more hands-on approach to your retirement savings. |
| No Investment Risk The risk is on the employer to ensure the fund is properly managed and can pay out the promised benefits. This makes DB plans a less stressful option for employees. | Potential for High Returns Depending on your investment choices and market performance, your retirement savings could significantly grow over time. |
| Stability DB plans typically provide a fixed, lifelong income, meaning that the risk of outliving your savings is low. | Portability If you change jobs, you can usually roll your DC plan into your new employer's plan or into an individual retirement account (IRA). This can be a great benefit in today's mobile workforce. |
| Protected from Market Volatility Benefits are not dependent on the ups and downs of the financial markets. | Transparency You can see exactly how much money is in your account at any given time, which is a good fit for those who like to be fully informed. |
| Beneficial for Long-Term Employees Since benefits are usually calculated based on years of service and salary history, DB plans can be particularly beneficial for employees who spend many years with the same employer. | Flexibility There are various options at retirement for how to receive your savings (lump sum, annuities, periodic withdrawals), which gives you flexibility to meet your personal needs and circumstances. |
Ready to Learn?
Our training course will provide a powerful and affordable all-in-one solution to get you started with Defined Benefit Plans.
In-Depth Knowledge based on Experience
Over the duration of this course, you'll not only learn the fundamentals of retirement income planning, but you'll also get an in-depth understanding of defined benefit plans, income distribution strategies, and essential tax considerations. We even tackle the complex topics of longevity risk and estate planning, ensuring you're well-prepared to leave a secure financial legacy.
User-Friendly Learning Environment
Our course material is user-friendly and easy to understand, designed to ensure your full attention is on learning, not navigating the course. We've incorporated the latest technology tools and know-how to create a seamless learning experience.
You'll also gain access to a supportive community of learners and professionals who can provide additional insights and perspectives. We believe that learning is an ongoing process, and our community is designed to foster that spirit of continuous growth.
Defined Benefit Plan Courseware
Building a Secure Future: Retirement Income Planning through Defined Benefit Plans
This course provides a comprehensive overview of defined benefit plans, explaining how they work, their advantages and disadvantages, and the key considerations for individuals and employers when choosing this retirement planning option. Topics include plan structure, funding methods, vesting, and the calculation of retirement benefits. This course is an invaluable resource for anyone seeking a solid foundation in defined benefit plans.
Introduction to Defined Benefit Plans
$1,200
- Understanding Retirement Income Planning
- Fundamentals of Defined Benefit Plans
- Strategies for Maximizing Retirement Income
- Implementing and Monitoring Retirement Income Plans
Philanthropy
Defined Benefit Partners is an Agent for Lafayette Life Insurance. The company gives back to the community through the Lafayette Life Foundation (LLF).
Since 2005, LLF has awarded over $950,000 in grants.
Many worthy organizations have received grants, including:
Food Finders Food Bank
Habitat for Humanity
Lafayette Urban Ministry
Mental Health Association
United Way
Frequently-Asked Questions
What is a defined benefit plan?
It is a defined benefit pension plan whose annual contribution is calculated under the rules of Internal Revenue Code (IRC) Section 412(e)(3). It is also referred to as a “Fully Insured Plan,” or an “Insurance Contract Plan.” The plan is funded exclusively with insurance products.
Why would a business owner adopt a
defined benefit plan?
Adopting a plan can be an important financial tool for retirement planning. It provides an opportunity to achieve retirement goals without stock market risk to the principal.
Who can adopt a defined benefit plan?
All business entities are eligible for a defined benefit plan. This includes sole proprietors, partnerships, C corporations, S corporations, and limited liability companies. The business entity must have stable
income, as fluctuating income can create potential funding problems.
How do I evaluate a defined benefit plan
for my business?
We can help you collect census data and other pertinent information. A retirement plan proposal will be prepared based upon your objectives and funding goals.
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