Defined Benefit
Traditional Plans

A defined benefit plan can provide significant benefits for a company wanting to provide post-retirement benefits for employees with long service records. These plans required a significant commitment on the part of the employer and can provide excellent benefits for the employees.

What is a defined benefit plan?

A defined benefit plan is a qualified plan funded by the company. Employers can generally contribute more to defined benefit plans than other qualified plans. These plans are established to provide the employees a specified benefit at normal or early retirement based upon the employee’s compensation and length of service with the employer. The benefit to be provided by the plan to the employee is not dependent on the investment returns of the trust and is solely based on the benefit formula adopted by the company.

What are the advantages & disadvantages to a defined benefit plan?

The defined benefit plan has many advantages that make the plan attractive to a company. A defined benefit plan can provide significant benefits in a relatively short period of time in years in which the company and key employees have high income. A defined benefit plan provides the company the highest contribution option under any retirement plan while also providing a predictable benefit for the employees.

However, there are some disadvantages to these plans. Primarily, the cost and administrative complexity is a factor. These plans are required to engage an actuary to determine the annual funding levels and to sign the annual Schedule B for the plan which is required in the annual Form 5500. In addition, the plan is required to be funded in each plan year the assets held in the trust are not sufficient to satisfy the accrued benefits in the plan. A company with a defined benefit plan could be required to contribute to the plan even in years in which the company does not have a profit. Failure to fund the minimum contributions to the plan can result in an excise tax being assessed.

How does an employee receive their money from the plan?

Upon the normal or early retirement of the employee, the plan will provide the employee with options for payment of benefits from the plan. The plan is designed to provide a monthly benefit to the employee but other optional forms of distribution can be elected by the employee if allowed by the plan document.

The plan does not allow for in-service distributions and it is not required to make any payments to the employees prior to the employee’s attainment of normal or early retirement age. The plan can contain provisions allowing distribution of benefits at the time of termination by the employee but these provisions are not required.

What are the first steps to getting a defined benefit plan started?

If you are interested in exploring a defined benefit plan, please contact Resource Benefits Administrators at (254) 776-6214 or (512) 342-1652 and a representative will assist you with your questions and the procedures needed to get your plan established.

3415 Greystone Drive, Suite 205
Austin, Texas 78731
(512) 342-1652
5400 Bosque Blvd, Suite 500
Waco, Texas 76710
(254) 776-6214

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