Defined Benefit Plans Can Help Provide Valuable Retirement Benefits
Defined benefit plans allow business owners to create valuable retirement benefits for themselves and their employees. In these types of plans, the employer makes annual contributions to the plan to reach a funding target and they are ideal for businesses with consistent cash flow. With defined benefit plans, contributions are made by the employer and do not allow discretionary employee contributions.
Advantages of Defined Benefit Plans for Your Business
Tax deductions for the employer
Retirement benefits are set and predictable, provided annual funding is made
Can help attract and retain employees
Higher benefit and contribution limits than 401(k) profit sharing plans
Availability of life insurance with tax-deductible premiums with income tax advantages at death
Larger contributions allowed for older participants
Can be paired with a defined contribution plan to provide flexibility for additional benefits
Points to Consider About Defined Benefit Plans
Annual contributions are required.
The employer is responsible for the investment decisions for the plan.
Participant loans are not permitted.
Vesting schedules, based on an employee’s service, can be used to grant ownership of employer contributions.
Defined Benefit Plan Options to Meet the Needs of Small Business Owners
Often considered a hybrid retirement plan because it combines the guaranteed benefit, contribution limits and tax deductions of a defined benefit plan with the portability and flexibility of a defined contribution plan.
The Lafayette Life Insurance Company does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Lafayette Life cannot guarantee that the information herein is accurate, complete, or timely Lafayette Life makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Please consult an attorney or tax professional regarding your specific situation.
The Lafayette Life Insurance Company provides services to pension plans as outlined in a separate Administrative Services Agreement, and issues life insurance and annuity products that may be used as funding options. This material is for informational purposes only. Lafayette Life does not serve as plan administrator or fiduciary, nor does Lafayette Life or its representatives provide ERISA, legal or tax advice. Your personal or legal tax advisors should always be consulted and relied upon for advice.
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