Defined benefit plans often offer the largest deductions for funding retirement benefits. Individual participants in 401(k)/profit sharing plans are limited to $54,000 in 2017. The defined benefit limit is as high as $215,000. Tax deduction often pays for cost of staff benefits. In most cases a defined benefit pension plan must be funded each year regardless of business profits. Sometimes a range of contributions is allowed, which gives some flexibility in contributions. Changes in interest rates, investment experience, and employer demographics can alter the funding pattern of a plan.
Traditional Defined Benefit
- 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. The amount is based on a specific dollar or a percentage of compensation.
- 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. 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 which 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 the lump sum.
Annual Actuarial Services
- Review of employee census data to determine eligibility under the terms of the plan
- Prepare actuarial valuation to determine contribution costs
- Compliance testing including:
- Minimum participation
- Benefit limits
- Top heavy determination and required minimum benefit
- Deduction limits
- Review and update participant vesting and prepare participant benefit statements
- Calculate and certify the plan Adjusted Funding Target Attainment Percentage
- Prepare Form 5500 with related schedules including Schedule SB and Annual Funding Notice
Optional Administrative Services
- Calculate contributions for self employed individuals
- General nondiscrimination testing for cash balance plans and combination defined benefit and defined contribution plans
- Prepare annual PBGC premium filing forms
- Prepare comprehensive valuation booklet
- Actuarial computations for accounting requirements
- Actuarial cost impact studies for plan amendments, law changes, collective bargaining negotiations, etc
- Calculate participant retirement and deferred vested benefits
- Calculate required minimum distributions
- Assist with benefit distributions
- Form 1099-R preparation
- Prepare actuarial analysis
- Prepare plan document
- Prepare Summary Plan Description
|Not FDIC Insured||Not Bank Guaranteed||May Lose Value|
|Not Guaranteed by any Government Agency||Not a Bank Deposit|