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 PenSys Defined Benefit Plan |
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A defined benefit plan promises to pay participants a specified monthly
income when they retire. The amount of monthly benefits is usually based
on the participant's pay and years of service. A defined benefit plan
can provide for a lifetime annual retirement income of up to the highest
consecutive three-year average compensation or $195,000, whichever is
less.
The plan sponsor must make certain that there is enough money in the plan to pay the promised benefits. Contribution levels are determined by an actuary using plan specific assumptions that include future salary increases, investment performance, years until retirement, and life expectancy after retirement.
Contributions
to a Defined Benefit Plan are mandatory and must satisfy minimum standards.
Larger contributions must be made on behalf of older participants to fund
a specified benefit level. This is because an older participant has fewer
years remaining until retirement. This can be advantageous to key executives,
who are often older than the other participants.
Employer Advantages
- Contribution
for executives can be substantially higher in a defined benefit plan
than in other types of retirement plans
- Defined
Benefit plans tend to favor older, higher-paid employees
- Lets
you deduct your contributions from taxes as a business expense
- Helps
recruit and retain quality employees
- Invests
in long-term employees rather than short-term employees
- Can
lower your funding levels during periods of higher investment return
- Reduces
your need for employee investment education
Employee Advantages
- Receive
a benefit set by the plan
- Save
for retirement without making any investment decisions or assuming any
investment risk
View the Tiered Defined Benefit Plan Highlight Sheet
View the Tiered DB(k) Plan Highlight Sheet
View the Owner DB(k) Plan Highlight Sheet
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