Defined Benefit Plans
A company retirement plan in which a retired employee receives a specific amount based on salary history and years of service and in which the employer bears the investment risk.
A retired employee receives a specific amount based on salary history and years of service.
Defined Benefit plans provide a fixed, pre-established benefit for employees at retirement. Substantial benefits can be provided and accrued within a short period of time. Employers can generally contribute (and therefore deduct) more each year than in defined contribution plans.
Cash Balance Plans - A pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest credits.
- Easy to understand, straight forward hypothetical account balance is established for each participant as follows: Beginning Balance + Contribution Credits (usually defined as a % of pay) + Interest Credits (defined in plan document, guaranteed interest) = Ending Balance.
- Accelerated retirement savings for Owners and Key employees. Can vary contribution by owner or Key employee.