For the most part, the news about Defined Benefit plans lately has not been particularly good. Whether a big company could no longer fund its plan or how it was bankrupting their business, headlines have discouraged many businesses from seriously considering a DB plan.
But it’s time to take another look because, for smaller, more mature companies, DB plans can be a great vehicle to help employees prepare for retirement.
You may be surprised to learn that they are actually a leading choice for consultants and a key tool to have in your arsenal.
With a Defined Contribution plan, it’s the employees who make many of the contributions and take on the investment risk. Their retirement benefit is their accumulated balance. With a Defined Benefit plan, the employer makes the contributions and assumes the risk. Employees receive a promised benefit at retirement, typically in the form of monthly income.
DBs aren’t for everyone, but you will likely find clients and prospects who could use this kind of plan to help meet their tax and savings goals.
For example, consider business owners who have focused on building their companies but have pushed off saving for retirement. A DB plan can be a tool to help them make up for lost time with substantial contributions. It may even help them retire early if that’s something they’re considering.
Companies can also use a DB plan as an incentive to attract new talent. While 401(k) plans allow employees to contribute to their retirement savings, DB plans are an employer's responsibility to fund. This can present a competitive advantage to a company looking to keep top talent.
But only businesses that have predictable earnings and long-term viability should consider a Defined Benefit plan because there are consequences if required contributions are missed.