| 
Instead of accumulating contributions and
earnings in an individual account like defined contribution
plans (profit sharing, 401(k), money purchase), a defined
benefit plan promises the employee a specific monthly benefit
payable at the retirement age specified in the plan. Defined
benefit plans are usually funded entirely by the employer.
The employer is responsible for contributing enough funds
to the plan to pay the promised benefits regardless of profits
and earnings.
Employers who want to shelter more than the
annual defined contribution limit ($40,000 in 2002 and 2003),
may want to consider a defined benefit plan since contributions
can be substantially higher resulting in fast accumulation
of retirement funds.
The plan has a specific formula for determining
a fixed monthly retirement benefit. Benefits are usually based
on the employee's compensation and years of service, which
rewards long-term employees. The maximum benefit allowable
is 100% of compensation (based on highest consecutive three-year
average), up to a maximum annual benefit of $160,000 (2002
and 2003 limit).
Contact us
to help set up a defined benefit plan for your company.
|
