At retirement, the plan provides a guaranteed monthly benefit based on the formula defined in the plan document. In some cases, participants may be offered a lump-sum distribution instead. Distributions follow similar rules to other qualified plans, including Required Minimum Distributions (RMDs) beginning at age 72.
Yes. A Defined Benefit Plan can be frozen (suspending new benefit accruals) or terminated (fully shutting down the plan), but this must be done carefully and with proper planning. Upon termination, participants typically receive a lump-sum rollover or annuity based on their accrued benefit.
Yes. Defined Benefit Plans require an annual Form 5500 filing and actuarial certification. These filings confirm that the plan is properly funded and in compliance with IRS and Department of Labor rules. Global Advisers partners with actuaries and plan administrators to handle these responsibilities on your behalf.
If you hire employees, they may need to be included in the plan based on eligibility rules and nondiscrimination requirements. However, the plan can often be designed to favor owners or limit participation based on minimum service and age requirements. We work closely with third-party administrators and actuaries to manage this process.
Employer contributions are tax-deductible, which can significantly reduce current-year taxable income. Investment earnings grow tax-deferred, and distributions are taxed as ordinary income in retirement. For high earners, this structure offers one of the most powerful ways to lower taxes and build retirement wealth.
Generally, yes. Once the plan is established, the business is expected to fund it annually based on the actuaryโs calculation. However, contributions can be adjusted somewhat from year to year depending on plan performance and funding level. Plans can also be frozen or terminated with proper notice and guidance.
Yes. A Defined Benefit Plan can be combined with a 401(k)/Profit-Sharing Plan to maximize retirement contributions. This is often referred to as a โcombo planโ and is commonly used by business owners with higher income levels who want to contribute as much as possible in a tax-advantaged way.
There is no fixed IRS contribution limit like with other plans. Annual contributions are based on the retirement benefit the plan is designed to provide, up to a maximum lifetime benefit set by the IRS (e.g., $275,000/year as of 2024). Contributions can often exceed $100,000โ$300,000 per year depending on age and compensation.
Contributions are actuarially calculated based on factors such as age, compensation, years to retirement, and the targeted benefit at retirement. The older the participant and the higher the income, the larger the allowable contributionโoften well above the limits of SEP IRAs or 401(k)s.
Defined Benefit Plans are ideal for high-income business owners, professionals, and self-employed individualsโparticularly those over age 45โwho want to make large tax-deductible contributions and accelerate retirement savings. They are especially effective for businesses with no or few employees, where most of the benefit can be directed to the owner.