What You Need To Know About Defined Benefit Plans

Commonly referred to as a pension plan, a defined benefit pension plan provides employees with a guarantee for retirement benefits. These plans are typically funded by the employer and the payouts are made according to a set formula based on the age, tenure, and salary of the employee.

A cash balance defined benefit plan has the option of a lifetime annuity. With this type of plan, the employee's account is credited with a set percentage of annual compensation with interest. The investment risk, funding requirements, and funding limits depend on the requirements of the defined benefit. Portfolio changes will not affect the final benefits an employee receives upon termination or retirement. All losses and ownership of profits go to the company.

A defined contribution retirement plan is usually a tax-deferred plan, such as a 401k or 403B. With a defined contribution pension plan, the employee contributes a set amount or percentage of their pay into a retirement fund account. Sometimes, the employer will match a portion of those contributions. There are restrictions on this type of account in regards to how and when the employee is able to withdraw the funds in their account without having to pay any penalties.

Landmark Financial is dedicated to helping you make the most out of your Arizona benefit plans. To find out how we can help, call our office in Surprise AZ at 623-975-7589 or Scottsdale AZ at 480-272-6752 today.