Frequently Asked Questions

    • Are takeovers of existing Defined Benefit plans permitted?

      Yes, but there is quite a lot of information that needs to be analyzed before an assessment can be made, such as review of the prior plan documents, calculations, tax returns, salary history, and accrued benefit, etc.

    • How do I set up a Defined Benefit plan?

      Dedicated Defined Benefit Services (Dedicated DB) has created a prototype plan document that simplifies the process and information required to open a Defined Benefit plan.  We will gather information from the business owner and the financial advisor and CPA to design the plan to meet the client’s objectives. Dedicated DB takes care of all the IRS forms and plan administration services.  The client or financial advisor will open investment accounts once the plan is established. Read more about Setting Up Your Defined Benefit Plan.

    • How long does it take to set up a Defined Benefit or Cash Balance plan?

      Generally, a plan can be set up in 2-3 weeks. Dedicated DB will need accurate information from the business owner about their business and their objectives to design the plan(s). Once the plan is designed and agreed to, Dedicated DB will prepare the adoption agreement and other documents for client signature. The plan is established once the documents are signed and then trust investment accounts can be set up and the business can begin to deposit the contribution or pay credits. Learn more about getting started with a plan.

    • What if I have sponsored a Defined Benefit plan in the past?

      There is a limit on the annual benefit that can be paid out under a Defined Benefit plan. If that limit was not reached in the prior plan, we can run an illustration for you to determine whether it makes sense for you to open another plan. As with take over plans, a complete analysis of the prior plan is required.

    • Does the IRS approve of these plans?

      Yes, the IRS has approved the documents that Dedicated Defined Benefit Services uses for your plan.

    • Can I administer my own Defined Benefit account?

      Defined Benefit plan administration requires technical analysis, complex calculations, and completion of IRS required forms and procedures, as well as a review by an actuary.  The IRS imposes penalties for incorrect information, miscalculation, and missed deadlines – all of which can be avoided by working with a third-party administrator with defined benefit expertise. Dedicated Defined Benefit Services, part of FuturePlan by Ascensus. performs these services in an efficient and cost-effective way.

    • How do I terminate my plan?

      There is a process to follow in terminating your plan, including adoption of amendments and possibly submitting to government agencies. We will calculate your benefit under the plan and assist you in preparing final filings that you will submit. Depending on how much money you have accumulated, you may have an excess or a shortfall to fund before your plan is terminated. Read more about Terminating Your Plan

    • How do I take money out of my plan at retirement?

      Generally, clients will terminate the plan and roll the assets into an IRA where they continue to grow tax-deferred until withdrawn.

    • Do I have to retire on the plan’s specified retirement date (year)?

      No. The plan’s retirement date is one of the provisions used to determine the amount of money you must contribute each year. You may be able to amend your plan to change the retirement date. Let us know as soon as possible so we can make the appropriate amendments.

    • What happens if I quit working before my plan’s retirement date?

      That’s fine. Your plan can be terminated at any time and the value of your benefit rolled over to an Individual Retirement Account (IRA). Early planning is always helpful, so inform us as early as possible if you intend to stop working before the plan’s retirement date.

    • When can I terminate the plan?

      You can stop the plan at any age and roll the value of your benefit over to an IRA. Routinely, however, a plan is expected to be maintained at least five years and the earliest retirement date is age 62.

    • What money can I use for contributions?

      Contributions must be made by the business that is sponsoring the plan. A sole proprietor may have more than one source of money but in no event can the sole proprietor deduct more than the net income generated from the business that is sponsoring the plan.

    • Are there minimum funding requirements for Defined Benefit plans?

      Dedicated Defined Benefit Services works with the business owners and their advisors in setting up the plan to determine an amount that will be comfortable to contribute for the next few years. Each subsequent year, based on changes in income, the prior year’s funding, investment performance and other information provided by the business owner, Dedicated DB will calculate a contribution range for the current tax year which establishes the minimum funding for the current year.


    • What factors determine how much I can contribute in subsequent years?

      • Actual investment earnings vs. the assumed interest rate
      • Changes in compensation
      • Changes in the maximum benefit limits
      • Changes in the funding rates as determined by the IRS

      These are inter-dependent. For example, if assets earn more than the assumed rate (decreases the contribution) and compensation increases (increases the contribution), we may get the same contribution amount as the previous year.

    • How do I know how much money must be contributed each year to the OnePersonPlus® Defined Benefit plan?

      Dedicated Defined Benefit Services will inform you annually of contribution requirements for the coming year. At the end of the year, Dedicated DB again will remind you to fully fund the contribution before filing your taxes.

    • What is the maximum amount I can contribute to a Defined Benefit plan?

      There is no specified limit — the limit is on the allowable benefit, not the contribution.

      • The benefit is the amount your plan will pay out annually in retirement.
      • The contribution is what you pay in each year while participating in the plan to accumulate enough to make the pre-determined annual benefit.
      • The accumulation, also called the benefit commitment, is the total amount in the plan at retirement.
        Unlike defined contribution plans (e.g., 401(k)s, SEPs, SIMPLEs, etc.) which have limits on the amount that can be contributed, Defined Benefit plans have limits on the benefit that can be paid out.

      There are two separate limits on the benefit, either of which may apply:

      • 01) 100% of compensation, reduced pro rata for years of service less than 10.
      • 02) $275,000 reduced pro rata for less than 10 years of participation in the plan.
        • This limit is further reduced actuarially if benefits begins prior to age 62.
        • This limit is increased actuarially for benefits beginning after age 65. For this reason, contributions for older participants can be much higher.

      Contributions to Fund Maximum Benefit

      Age Retirement Age Maximum Benefit Contribution
      45 62 $275,000 $154,500
      50 62 $275,000 $196,800
      52 62 $275,000 $216,800
      55 65 $275,000 $203,300
      60 65* $137,500 $259,000

      * Since the participant only has five years of participation, the maximum benefit is limited to 50% of the maximum benefit payable at age 65 ($275,000).

    • Can my contribution amount be reduced after I set up my plan?

      Yes. This can happen in several ways. You can always amend your Defined Benefit plan formula down for future years (but, depending on when you amend the plan, you may still be required to make the contribution for the current year). If your compensation decreases, your annual required contribution may decrease. If your investment performance is greater than the assumed interest rate, your contributions will also decrease.

    • When is my annual contribution due?

      The deadline for pension plan contributions is no later than 8½ months after the close of the plan year. For the contribution to be deductible, you must make it on or before the due date of your tax return (with extensions).

    • Is my annual contribution limited to a percentage of income like a SEP or Profit Sharing plan?

      No. Your annual contribution is determined as a function of age, compensation, investment performance, actuarial assumptions, and maximum benefit allowed. An actuary calculates the amount that you must fund each year.

    • Is my contribution mandatory?

      Yes. A contribution is required each year to fund the benefit promised at retirement. However, the plan benefit formula can be amended for future years and thus increase or decrease the contribution amount.

    • Is there a ceiling (or a floor) on how much my investments can earn?

      Your Defined Benefit plan places no restrictions on investment volatility. You and your investment advisor are responsible for selecting and managing your investments. If your investments earn above the assumed rate of return, your required contributions will decrease. If they earn below the assumed interest rate, your required contributions will increase.

    • What happens if my investment performance is greater than the actuarial assumed interest rate?

      If the investments earn more than the assumed interest rate in the plan, the maximum contribution allowed will be reduced. If this continues over time, you will be required to make lower contributions into the plan to achieve the goal.

    • Can I maintain both a 401(k) plan and a OnePersonPlus Defined Benefit plan?

      Yes. Elective deferral contributions and profit sharing contributions of not more than 6.0% do not count against the deductible limit described above. As long as the 401(k) plan is limited to salary deferrals and employer contributions of not more than 6.0%, you can make contributions to both plans.

    • I have a Profit Sharing plan for my business. Can I now terminate that plan and set up a OnePersonPlus® plan?

      Yes. Your existing Profit Sharing plan can be terminated and you can set up a OnePersonPlus Defined Benefit plan. However, if you have already made your profit sharing contributions for the current plan year, those contributions might not be deductible if the Defined Benefit plan is established for the same year. In any year in which an employer maintains a Defined Benefit plan and a defined contribution plan, the maximum deductible limit for both plans is the GREATER OF (1) 25% of total compensation, or (2) the amount necessary to fund the Defined Benefit plan. Usually, the contribution amount for the Defined Benefit plan exceeds 25% of total compensation, so any employer contribution to the defined contribution plan might not be deductible this year. Please talk to your tax advisor and refer to IRS Publication 560 concerning deductibility and carryovers to future years. However, under the Pension Protection Act of 2006, a profit sharing contribution of not more than 6.0% will not affect the maximum defined benefit contribution. In essence, an employer can make BOTH a maximum Defined Benefit plan contribution and an employer profit sharing contribution of up to 6.0%.

    • I already participate in a plan sponsored by another company where I am employed. Can I participate in both plans?

      You can participate in both plans if the two companies are not part of a controlled group — that is, two or more firms controlled by the same five or fewer people.

    • I own more than one business. Do I have to cover employees in both businesses?

      Generally, yes. If you own other businesses and you are considered part of a controlled group or affiliated service group, then all businesses must be covered under the plan.

    • I have employees other than myself. Do I have to cover them in the Defined Benefit plan?

      All eligible employees must be included in a Defined Benefit plan. Generally, we will recommend using a Cash Balance plan and a 401(k)/Profit Sharing plan if there are non-family member employees. By combining the two plans, depending on the ages of the employees, we can often control the cost of providing benefits for employees. In addition, selecting a 1-year/1,000 hours entry requirement will prevent any part-time employees from entering the plan.

    • What is the role of Dedicated Defined Benefit Services?

      Dedicated DB is the third-party administrator. It provides the plan document, the actuarial calculations, prepares all tax forms, answers any questions that may you have, and is responsible for keeping the plans in compliance with the law. It doesn’t provide investment or tax advice. Read more about third-party administration.

    • What laws changed to make Defined Benefit plans more attractive for small business owners?

      Section 415(e) of the Tax Code was repealed. Because of the repeal, a business owner can now use a Defined Benefit plan to build assets without taking into consideration money already accumulated in other retirement plans.

      Section 415(b)(1)(A) was amended to increase the maximum retirement benefit allowed.
      Section 415(b)(2)(C) was amended to lower the age at which the maximum retirement benefit could be received.

      2006 Pension Protection Act provides additional flexibility by allowing contributions of no more than 6.0% to a defined contribution plan, in addition to salary deferrals, without impacting the contribution to the Defined Benefit plan.

      The Tax Cuts and Jobs Act (TCJA) that passed in December 2017, did not directly impact Defined Benefit plans but because it eliminated many other deductions, it increased the value of the large deductible contributions business owners can potentially make into these plans. In many cases, the deductions lower taxable income sufficiently to allow the owners of pass-through entities (sole proprietors, S corporations, and partnerships) to qualify for Section 199A 20% deduction on Qualified Business Income (QBI).

      Together, these changes allow small business owners to contribute more now to a Defined Benefit plan.

    • Are loans or hardship withdrawals allowed?

      The plan does not permit hardship withdrawals. Participant loans are available in Defined Benefit plans if the employer chooses this feature.

    • Can a Defined Benefit plan be amended?

      Yes. Generally, you can amend the plan to increase the benefit formula or decrease the formula. You cannot amend up, then amend down, then amend up, then amend down, etc., since this may be viewed by the IRS as abusive.

      Following are some of the changes that can be made:

      • Change your benefit formula. You can decrease or, if you qualify, increase your benefit formula, thereby changing your contribution amount.
      • Change your retirement date or age at retirement, if you qualify.
    • What is a Defined Benefit plan?

      A Defined Benefit plan is a qualified plan in which you set a target annual retirement benefit — the amount you want to have each year when you retire. Then your annual contributions are calculated to provide that benefit. Contributions are based on current age, the average of your three highest years of income, your planned retirement age, and, in subsequent years, the balances you have accumulated in the plan. Annual contributions are mandatory, and a higher benefit will result in higher annual contributions. Contributions will increase or decrease as the four factors mentioned above change.

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