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.
Generally, a plan can be set up in two-three 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.
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.
Yes, the IRS has approved the documents that Dedicated Defined Benefit Services uses for your plan.
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. Given the time and effort required, we cannot consider takeovers during 4th quarter.
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, an Ascensus company. performs these services in an efficient and cost-effective way.
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
Generally, clients will terminate the plan and roll the assets into an IRA where they continue to grow tax-deferred until withdrawn.
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.
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.
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 5 years and the earliest retirement date is age 62.
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.
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.
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.
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.
There is no specified limit — the limit is on the allowable benefit, not the contribution.
There are two separate limits on the benefit, either of which may apply:
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* Since the participant only has 5 years of participation, the maximum benefit is limited to 50% of the maximum benefit payable at age 65 ($220,000).
Yes. This can happen in several ways. You can always amend your 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.
The deadline for pension plan contributions is no later than 8 1/2 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).
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.
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.
Your 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.
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.
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.
Yes. Your existing profit sharing plan can be terminated and you can set up a OnePersonPlus 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%.
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 5 or fewer people.
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.
All eligible employees must be included. 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/1000 hours entry requirement will prevent any part-time employees from entering the plan.
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.
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
Together, these changes allow small business owners to contribute more now to a defined benefit plan.
The plan does not permit hardship withdrawals. Participant loans are available in defined benefit plans if the employer chooses this feature.
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:
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 3 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 4 factors mentioned above change.