Defined Benefit Plan

A defined Benefit plan is a qualified employer-sponsored retirement plan that guarantees a specific benefit level at retirement. Because a defined benefit pension plan allows the highest potential contribution of any plan, it can create a substantial retirement fund in a relatively short period of time. This type of plan is the most advantages for an employer who wants to maximize tax-deferred retirement benefits for its older, long term employees and can afford to make large ongoing contributions.

Virtually any employer can set up a defined benefit plan. However, it is perhaps most suitable for businesses or professional practices that have a small group of highly compensated owners (employees) and very few rank and file employees.

There are strengths and trade-offs for establishing a defined benefit plan,



  1. With less time until retirement, older participants in a defined benefit plan are allowed by law to have greater contributions made by their employers on their behalf.
  2. The plan provides a guaranteed pension benefit
  3. Your contributions are tax deductible by the business
  4. Your contributions are tax deferred for employees of the business
  5. The plan may be “integrated “with Social Security benefits


  1. You must make payments to the plan regardless of how your business is performing
  2. You must hire an actuary to determine how much you must contribute to the plan
  3. You may have to pay for pension insurance
  4. Plan benefits are not portable
  5. The plan is subject to “top-heavy” legal requirements
  6. The plan is not allowed to discriminate in favor of highly compensated employees
  7. The plan is subject to ERISA rules


A number of rules govern defined benefit plans. Consequently, you will need a retirement plan specialist to help you develop and maintain a plan.