Retirement professionals will help fine-tune your plan
Defined benefit plans have been a popular way for companies to provide employees with retirement benefits. Under such plans, the company contributes amounts each year and employees are provided a certain amount of money in retirement. First American Bank can help your business decide which type of plan fits your individual needs and help craft a plan document that guides long-term plan operations.
A traditional defined benefit plan bases monthly retirement benefits on a formula stated in the plan document. The formula is often an amount earned for each year of service and is based on a specific dollar or a percentage of compensation.
- Company contributions are actuarially determined each year based on the projected benefits at retirement and the current value of the plan account.
- The annual minimum required contribution must be deposited within 8-1/2 months of the plan year end to avoid penalty.
- When a distribution is payable upon termination or retirement, the normal form of benefit is a monthly annuity. In lieu of the annuity, a lump sum distribution may be offered.
- If the participant is married, the normal form is a joint and survivor annuity.
A cash balance plan is a type of defined benefit pension plan that looks like a defined contribution plan. Each participant’s benefit is expressed in the form of a (hypothetical) individual account. The accounts are credited annually with amounts specified in the plan document.
- Although contribution credits are specified in the plan document, actual contributions are determined actuarially.
- Contributions are not discretionary, as they are in a profit sharing plan, and they must be deposited within 8-1/2 months of the plan year end to avoid penalty.
- When a distribution is payable upon termination or retirement, the normal form of benefit is a monthly annuity. In lieu of the annuity, the participant may elect a lump sum distribution.
- If the participant is married, a joint and survivor annuity option must also be offered and the spouse must consent to any optional form of payment, including a lump sum.
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However, if you are still working, you are not required to begin RMDs from your employer sponsored plan until April 1 of the year following the year in which you terminate employment. This exception does not apply if you own more than 5% of the employer, nor does it apply to IRAs.
a. $22,500 for 2023;
b. the maximum deferral amount allowed under the terms of the plan; or
c. the amount that allows the plan to meet the required nondiscrimination tests.
In addition, if you attain age 50 or older by December 31, you may defer an additional $7,500 catch up contribution.