Defined Benefit Plans (DB) is for more established companies and professionals who are earning a significant income. Given the right demographics, a defined benefit plan can provide both tax savings and financial security that effectively reward the hardworking, well-compensated business owner, as well as long-term employees.
Many mature companies have experienced owners who are in the 35% federal income tax bracket. This favorable type of plan may allow the owners to make TAX DEDUCTIBLE contributions that may be in excess of $100,000 depending on age and income. A plan implemented now will impact the current year federal income taxes.
Defined Benefit Plans base the annual contribution on the amount needed to fund the future benefit of each participant. Actuarial tables are used to determine the future accumulated benefits each participant will be entitled to receive. These DB Plans allow the highest paid and the oldest employees (often the owners) to make larger annual contributions than would be allowed under defined contribution plans. For example, the tax code allows a participant of a DB Plan with an annual income of $240,000 per year to accumulate approximately $2 million dollars¹ of retirement dollars in the future. As owners generally are the highest paid employees, the typical DB Plan will greatly benefit the owner(s).²