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Defined Benefit Plans

Defined Benefit Plans are the type of traditional pension plans that have been in the news a lot lately. Bad press aside; these plans can be excellent tax and retirement savings vehicles for small businesses.

This type of plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 5 percent of average salary for the last 5 years of employment for every year of service with an employer.

The employer is responsible for making annual contributions that are sufficient for funding the promised benefit. The required annual contributions are calculated by an actuary using minimum funding standards designed to ensure that the value of benefits accumulated and the plan’s assets bear a reasonable relationship to one another. Contributions are made to a pension trust fund that is invested on behalf of the plan participants.

Defined Benefit plans are complex and may be difficult for employees to understand. Many predict that the future of defined benefit plans will trend towards cash balance plans rather than traditional plans.

SD Pension is by no means the first company that I have worked with for defined benefit plan services. It’s not the first, but it’s clearly the best. DBP’s are complex; mistakes have serious ramifications and, yet, you can’t ignore them because the tax benefits are significant. Two things make SD Pension unique in the field. First, you have easy access to smart people that have been in the field for years if not decades. They are accessible; they have seen your concerns before; they know the answers. Second, they’re are not just focused on your this year tax return. Getting into these plans and managing these plans is one thing; preparing for a proper exit is quite another and, done incorrectly, can rob you of many of the benefits. Once again, SD Pensions has been there before and they can provide the needed advice. Bottom line, SD Pensions is simply the best.

John Major