Defined Benefit Plan

Question: Does accrual of benefit in defined benefit plan stops at retirement? Can you continue participating on the defined benefit plan after retirement?

Answer: Usually, it stops at retirement. I have learned to hedge my answers...as there are some surprising circumstances that allow it. But, if you are/were only an employee and no longer drawing an income other than a retirement the answer is yes...it stops at retirement.

Question: Transfering hte money from my defined benefit plan? So due to a slow down in business my boss has canceled the defined benefit pension plan. He told me to open an IRA or something to transfer what I have to there. I am in desperate financial need right now. Is there any way I can get these benefits to use to help me get out of debt?

Answer: It is possible, but most likely a bad idea. It wold be treated as an early withdraw for tax purposes. That means a 10% penalty on top of income tax on the full amount as if it were normal income. If the amount is significant, your tax RATE could actually increase.

Question: How do the differences of a defined benefit plan and defined contribution plan's affect tax planning? Also, how do they affect financial planning of the individual tax payer Please answer in as much detail as possible.

Answer: exactly what it says, a defined benefit is one you select the amount you wish to take when you decide to retire, it will require a very large contribution to get it established, and these plans are not easy to find the defined contribution is exactly that, you have a specific amount you contribute for the time you have the plan in effect, your distribution will depend on how much you overall contribute along with the earnings over the years

Question: What is the difference between a defined contribution plan and a defined benefit plan in Canada? I am answering this question for a gerontology course. We are discussing the two types of employer-sponsored pension plans. Any help would be great!

Answer: Defined contribution = Contributions set, benefits variable. Defined benefit = Benefits set, contributions variable.

Question: What does a defined-contribution plan and a defined-benefit plan have in common, and what is different? I am confused, I thought they they were both the same at helping save for retirement. Any help to clarify for me is appreciated. Thank you.

Answer: These plans are very different. In a defined benefit plan (which are now very hard to find outside of a government job) there is a formula based on your years of service and the salary you make near the end of your career which determines your defined benefit. The risk of how the employer's investments perform fall entirely on the employer as they have to pay the defined benefit no matter how well or poorly they performed. In a defined contribution plan, your employer gives you a certain amount each year which is directed by you to the investment of your choice. Your final benefit is based the amount your employer gave you to invest and how wise you were in investing them. The risk of investment choices falls entirely on you. Very different programs where the risk is clearly shifted from one to the other.

Question: Can a business use a defined benefit plan and profit sharing plan together?

Answer: Yes

Question: How can you tell how generous an employee is in a defined contribution or defined benefit plan? Differentiate between both. Thanks :) *Employer. I'm in high school it's for schoooooooL!

Answer: Do you mean how generous an EMPLOYER is re: contribution versus benefit? That you have a choice with a single employer is wonderful or are you comparing apples to oranges? You don't need this job very much or you wouldn't be asking this ridiculous question.

Question: Defined Contribution Plan vs Defined Benefit Plan Question? Hi, I'm a little confused as to how can you tell how generous an employer is on a defined benefit plan and a defined contribution plan? I have to answer this question for a paper I'm writing and I'm not sure if this is a trick question or not and would like a little feedback. Where I'm confused is pretty much isn't it a standard for employers to pay a 6% contribution on either of these plans? Any help would be greatly appreciated

Answer: No, absolutely not. Most small businesses have no employer contribution ("match") to their defined contribution plans. And many have a match of under 5%. 6% is a generous match in defined contribution plans. Among larger companies a match of 4%-6% is more typical, but by no means standard. Many companies discontinue matches whenever profits or sales take a down turn.

Question: What is the diference between a Defined Benefit Plan and Defined Contrabution Plan?

Answer: A defined benefit plan is an employer-sponsored retirement plan where employee benefits are sorted out based on a formula, using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. This fund is different from many pension funds where payouts are somewhat dependent on the return of the invested funds. The payouts made to retiring employees participating in defined-benefit plans are determined by more personalized factors, like length of employment. A tax-qualified benefit plan shares the same characteristics of a defined-benefit plan, but also provides the beneficiary of the plan with added tax-incentives. These tax incentives are not realized under non-qualified plans. Now a defined contribution plan retirement plan wherein a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions on both as to when and how you can withdraw these funds without penalties. There is no way to know how much the plan will ultimately give the employee upon retiring. The amount contributed is fixed, but the benefit is not.

Question: Does a defined benefit pension plan need to report in W2? The company contribute to a financial institute for the benefit pension plan. I wonder if this contribution should report to W2 box 3 and box 13 ? The company contribute to a financial institute for the benefit pension plan. I wonder if this contribution should report to W2 box 1, 3, 5, 13 or any other boxes? if box 13 has to be selected, which code should used for it? The company contribute to a financial institute for the benefit pension plan. I wonder if this contribution should report to W2 box 1, 3, 5, 13 or any other boxes? if box 13 has to be selected, which code should used for 12a, 12b, 12c, 12d?

Answer: If the plan HAS to report, and it know if it has to or not, it would not appear on a W-2 but on a misc form like 1099MISC>

Question: If a member of a defined benefit plan dies before getting the pension, are he and his heirs illegible to be pd Privately held defined benefit plans do not require contribution by members but I am unsure if death is a cut off or not.

Answer: illegible means not legible http://www.m-w.com/cgi-bin/dictionary?va… legible means capable of being read or deciphered I don't know how illegible applies to your question

Question: How much is a reasonable cost for setting up a defined benefit plan & 401(k) profit sharing plan? How about annual administration cost?

Answer: 300 to 400 dollars to set up, it is usually a percentage for administration. They should not go hog wild on charges to set up or they will lose the account. They nickel and dime you on all of the other fees anyway. Sample charges one company (this is a step up from their cheap plan): PRO 401k Plans (Using Multiple - Fund Families) Setup Fees: $500.00 Per Participant Setup Fees: $5.00 Annual Fees: $1,500.00 Per Participant Annual Fees: $25.00 Loan Setup Fees/Per Loan: $25.00 Loan Annual Fees/Per Loan: $25.00

Question: How can a company freeze your defined benefit pension plan. ? My pension plan is frozen and I have 15 years before I can retire. The money in the account is not accruing It is just sitting there. How can they do that? I can't take my money out and put it somewhere else. So for the next 15 years I have money sitting and not making anything on it.

Answer: Looking to lower costs and reduce future funding obligations, many U.S. companies are taking a hard look at the retirement plans they offer to their employees. The harshest scrutiny is being focused on defined-benefit pension plans, which usually reward employees for years of service with a guaranteed monthly retirement benefit. Many employers are deciding that their traditional pension plans are simply too expensive to maintain, and the result is that they are freezing these plans. (To find out more about these plans, see The Demise Of The Defined-Benefit Plan.) For employees - particularly those close to retirement - who spent a number of years with the same employer, a frozen pension plan deal a severe blow to their post-work plans. The guaranteed income they had been anticipating upon reaching retirement age could be reduced significantly as a result of a pension freeze, which may force them to rely on the uncertainties of a 401(k) or some other type of defined-contribution plan. This is the prospect facing millions of employees at companies like Verizon, IBM, Sears and Hewlett-Packard, which are some of the employers that have frozen their defined-benefit plans in 2006. What started as a trickle has picked up speed and is expected to accelerate further with the new Pension Protection Act of 2006 (PPA). (To learn more about the PPA, read Pension Law Could Reduce Your Payout, Pension Protection Act Of 2006 Becomes Law and The Pension Bill: A Wolf In Sheep's Clothing.) What is a frozen pension plan? A frozen pension plan is one that has been amended to discontinue benefit accruals under the plan, although the assets remain in the plan. Certain administrative requirements must continue for a frozen plan, including ensuring that the plan satisfies minimum funding standards. Generally, there are two types of frozen pension plans, a hard freeze and a soft freeze. A "soft freeze" is when benefit accruals that are determined based on years of service are discontinued. This means that years of service after the effective date of the freeze are not factored into determining an employee's benefits under the plan. However, benefits continue to accrue based on increases in covered participants' compensation. An alternative version of the soft freeze is to freeze out a certain class of employees or new participants. Under a "hard freeze", employees will receive the benefits already accrued, but no new benefits are accrued after the date the plan is frozen. Thus, if a worker has spent 20 years with a company and plans to stay for an additional five years until retirement, no pension benefits are accrued during those last five years. Further, no new participants are allowed to participate in the plan. Most companies that freeze pension plans either introduce a 401(k) plan or other defined contribution plan, or enhance an existing plan. Freeze Vs. Termination A pension freeze is different from a pension termination. In a termination, a company must pay out all benefits as soon as administratively feasible, usually no longer than one year after the termination date. Distributions can be made as a lump sum, if permitted under the plan, or by buying employees an annuity that pays benefits over time. Companies in bankruptcy may transfer their pension liabilities to the Pension Benefit Guaranty Corporation (PBGC), a federal government agency that insures pension plans. (For more on the PBGC, see The Pension Benefit Guaranty Corporation Rescues Plans and Lump Sum Versus Regular Pension Payments.) Pension Protection Act of 2006 The Pension Protection Act, as its name implies, was meant to help ensure the financial viability of pension plans following high-profile plan terminations at several airline, steel and other companies. A few of the PPA's provisions, however, have resulted in many businesses either shying away from adopting new defined-benefit plans, or terminating/freezing those that were being maintained. Signed by President Bush in August 2006, the PPA runs more than 900 pages and includes a number of provisions related to retirement plans. These include provisions that allow companies to enroll employees automatically in 401(k) plans, provide investment advice to employees and establish default investment elections. These are viewed as some of the positive provisions. The negative provisions include those that seem to encourage companies to consider freezing or terminating their pension plans. PPA sets much stricter standards for ensuring companies set aside enough capital to fully fund their pension obligations. In particular, PPA gives most pension plans seven years - beginning in 2008 - to make sure their plans are 100% funded. For employers that fail to meet this funding obligation, a 10% excise tax may be levied on the company if the deficiency is not corrected in time. For many companies, this will mean they must accelerate their contributions. While these employers are perm

Question: If lump-sum is given as payment for a defined benefit plan, what is the maximum allowable benefit?

Answer: The lump sum payment limit is based on the Internal Revenue Code Section 415(b) - Defined Benefit Annual Benefit Limit. The current annual benefit limit is $175000 but can be reduced due to factors such as payout prior to age 65, years of participation in the plan less than 10. A lump sum payment is actually the present value of your accrued monthly benefit determined based on interest rates and mortality tables that are governed by Federal Law and the Plan Document. A maximum allowable lump sum payment cannot be determined without knowing when it is being paid out, the amount of the accrued benefit, the interest rates and mortality tables being used.

Question: Can a company keep money that was not put into the defined benefit plan? I work for a non profit company. Our defined benefit plan was frozen in August. We still had to contribute 5% of our income to the plan. We get paid monthly. We were told the first of January that the plan would stay frozen and no more money would be contributed. The money that we paid from September thru December was not put into the plan but we couldn't get it back until we were terminated. Is that legal? Shouldn't we get that money back now since it did not go into the retirement plan. Our retirement plan was mandatory. If you worked there you had to contribute 5%. Is that legal?

Answer: They probably just froze the organization's contributions, yours was hopefully made. But regardless, unfunded contributions are a company liability and are usually protected by an ERISSA bond. But anyway, yeah unfortunately it's legal.

Question: I just found out I'm enrolled in a defined benefit plan with my employer. The plan details say that..? participation in a defined benefit plan will limit the deductions i can take on IRA contributions. What's the limit? Can someone link me a good credible source about what the maximum IRA contributions I am going to be able to deduct? Right, I understand the regular IRA phase outs but is there a different phase out if I'm enrolled in a defined benefit plan. The info I got about this plan says the Pension Indicator box will be checked on my W2 and that the IRC will limit the amount I can deduct for an IRA contribution. Is this just the standard phase out or is there a different phase out for those enrolled in a defined benefit plan? Actually, I understand now. Thanks for the info. I'll give u best answer once it lets me.

Answer: http://cashmoneylife.com/2009/01/06/2009… The relevant info.... >>>>The Traditional IRA phase out schedule determines whether or not you can deduct your contributions against your taxes. The phase out for Traditional IRA deductions for single filers begins at $55,000 and ends at $65,000. The range for married filing jointly is between $89,000 and $109,000. It is important to note that tax filers with income limits above the deduction levels can still contribute to a Traditional IRA, however, they will not be able to deduct it against their taxes.<<<<

Question: What can I do with a tax-deferred defined benefit retirement plan if I quit employment before I retire?

Answer: Fine a way to roll it over into another plan - The IRS bangs you a penalty of an extra 10 percent if you are not 59 1/2 - I think it is ironic that if you work all your life and then retire before age 59 the federal Government can penalize you. Yet if you have never worked you are rewarded.

Question: Do you think it's funny or sad that defined benefit pension plans are dying since healthcare costs us so much? This country has a choice ---- spend vast sums of money on retirement or vast sums of money on healthcare for the elderly. It's impossible to have both. Which will we choose? We're seeing people's retirement security going down the tubes as few corporations offer defined benefits plans anymore.

Answer: Sad. But unless the US electorate votes for a different healthcare system, it will stay the way it is. Remember Obama was voted in to increase the availability of insurance. FACT - the USA spends more on healthcare PER PERSON than any other nation on the planet. FACT - the US has higher death rates for kids aged under five than western European countries with universal health coverage. That means that a dead American four year old would have had a better chance of life if they were born in Canada, France, Cuba, Germany, Japan etc, all of which have universal health coverage.

Question: Why do companies want to opt for Defined Contribution Plan vice a Defined Benefits Plan? Would a defined contribution plan save money for the company? If indeed more and more companies opt out of the government's guarentee pension plan agency, meaning less and less paying fees participants, would that agency be in trouble soon? If so what would happen to those funds that were frozen as a result of opting out?

Answer: While a defined contribution may or may not save the company money, what it does do is make the company's cost predictable. Under a DB plan, if the plan's earnings do not cover expected payouts, then the company must make up the difference (so the company not only pays in the contribution per worker, but might be on the hook for additional unplanned expenses). In a DC plan, the company is only on the hook for the match, and if the company falls on hard times, they can change the match to save money. Theoretically, the PBGC could go bankrupt if companies froze their DB plans and a few big companies went bellyup. In this case though, it is likely Congress would step in with an infusion of cash and prop the agency up.

Question: How much should I invest in 401k on a $30,000 salary-l contribute 12.45% to a defined benefit retirement plan.

Answer: It depends how much you can afford to take out. If you're married and have some financial support for your spouse that helps. If you can live with less than 30k, try and contribute as much as possible until you hit the limit where the company stops matching. As long as they match, that's basically free money and you should try and take advantage of it.