As the TPA, Dedicated Defined Benefit Services works with the advisor and the client initially to design the plan, prepare the legal documents of the plan, and obtain Trust Identification numbers needed to open Trust investment accounts.
Each year, we gather information from the client about compensation and employees, and any other changes to the business or the client’s objectives so that we can calculate a contribution range, ensure that the plans are in compliance with IRS regulations, and prepare tax forms for filing.
A dedicated plan consultant is available throughout the year to consult with the client as their business or needs change.
These services are required each year until the client retires or terminates the plan. Dedicated DB manages the plan termination process at which point the client generally rolls the assets out of the defined benefit plan and into an IRA.
A strong plan design will build in flexibility so the plan can continue to work for the business owner over time. Because we specialize in defined benefit and cash balance plans, we have worked on plans for just about every client business situation
The design process begins with a discussion about what the owner wants to contribute for themselves each year. Taking into account numerous factors including eligible compensation, age, years of employment, and actuarial formulas, we can calculate what the maximum annual contribution could be, within IRS limits.
Cash flow is another critical consideration. If a business owner plans to make large purchases in the next couple of years, a lower required contribution might better meet a client’s needs. However, because defined benefit and cash balance plans can be funded when taxes are filed, with extensions, up to eight and a half months after the end of the business fiscal year, the business owner has sufficient time to plan ahead.
Plan design must consider all employees and determine who needs to be included in the plans. Service requirements and different vesting schedules can be used to limit eligibility of participants. And, with cash balance plans, the business owner can designate certain classes of participants or even individuals who might receive favored treatment.
Plan design includes combining plans to meet the client’s objectives. Both the defined benefit and the cash balance plans can be combined with 401(k)s. An owner-only business could use a OnePerson (k) to increase the total contribution and for additional flexibility. Businesses with employees would use the OwnersPlus program which combines a cash balance plan with a Safe Harbor 401(k)/profit sharing plan to better manage and allocate the contributions required for employees.
A well-crafted plan design will take into account anticipated changes to the business so that the plan can be stable over the next 3-5 years. And, in all cases, the plans we design will pass all IRS non-discrimination tests.