Defined benefit plans have a fixed benefit that is determined by an employee’s salary history, years of services and age. Contributions are actuarially determined and are calculated based on the funding that will be needed to provide the benefit for each eligible employee at retirement. The maximum allowable benefit per employee is 100% of compensation, as long as this falls within maximum limits set by the IRS. This maximum amount is indexed each year for cost of living adjustments. This plan is not flexible as to the funding requirements and is generally more expensive to administer and maintain due to the IRS and actuarial requirements. This type of plan generally favors older, higher paid employees and is for employers looking for greater deduction limits.

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