Instead of determining an annual contribution each year, a defined benefit plan promises to pay a specific benefit at retirement. For example: 50% of average compensation for life.
Each year the amount of the contribution is determined based on the amount that is necessary to pay the promised retirement benefits. The employer is generally required to make contributions to a defined benefit plan each year.
- The maximum annual benefit a participant may receive at retirement is $230,000.
- The employer may tax-deduct the entire required contribution each year.
Who is a defined benefit plan right for?
- Small businesses seeking large tax deductions.
- Businesses seeking to attract and reward long-term employees.