A defined benefit pension plan is a retirement plan in which an eligible employee’s fixed benefit is based upon a formula, typically related to their salary history, years of service and/or age at retirement. The employer is responsible for overseeing the assets in the plan and bears the investment risk. Contributions are typically made by the employer based upon an annual actuarial valuation.
Both for-profit and many types of tax-exempt organizations can establish these plans for their employees. These plans can either be subject to ERISA requirements or they can be a church plan. If the employer is eligible to sponsor a church plan, the plan is not subject to certain ERISA requirements, such as annual 5500 reporting. However, both ERISA and church plans will be subject to nondiscrimination testing.
Who can participate?
All employees are eligible to accrue benefits unless the plan specifically excludes them.
Types of plan contributions
Usually employer contributions.
Eligibility
The employer has flexibility in determining which employees are eligible. As an example, an employer may impose age and/or service requirements before an employee can participate in the plan.
Potential Tax advantages
Benefits are generally not taxable until distributed. Retirees who are ministers may have retirement benefits designated as a tax-free housing allowance within legal limits.
To learn more about the retirement plans available to your specific organization, email us or call us at 1-888-98-GUIDE (1-888-984-8433).