Though most larger companies and government entities are backing away from defined benefit plans, DBs might make sense for smaller firms where the principals are looking to put away at least $50,000 and have a 5- to 10-year time horizon. With taxes likely to go up and Congress looking at lowering the DC contribution limit, the $200,000 DB annual benefit limit (rising to $205,000 it 2013) might be appealing, especially for Boomers who are behind the eight ball when it comes to retirement. For larger companies, cash balance plans and non-qualified plans are alternatives to a traditional DB plan.
For firms that want to contribute less than $50,000, the fees and burdens, along with contributions needed to pass the non-discrimination tests, make traditional DC and IRA programs more attractive. Defined benefit and non-qualified plans are important arrows for most plan advisors to have in their quiver — that is, if they want to fully service all their clients and avoid having them look to another advisor for solutions.
Editor's note: This is a corrected version of this post. The original post erroneously referred to the $200,000 annual benefit limit under Code Section 415(b)(1)(A) as a contribution limit.
