Many people describe DB(k) plans as a hybrid mix of a traditional 401(k) plan and a defined benefit plan. This relatively new retirement plan option is poised to become a popular retirement option, as it combined several of the best benefits from both types of retirement plans. While it’s not a viable option for all companies, since there are guidelines and restrictions that govern how and when these plans can be utilized, companies that are able to participate are likely to find that a DB(k) plan is much easier to administer and can be less of a drain financially than many other more traditional retirement and pension plans.
What are some of the features of a DB(k) plan?
This retirement plan option, which is employer sponsored, is designed only for companies that have between two and five hundred employees. These plans are simple for employees to participate in and easy for companies to maintain. A DB(k) plan combines the best features of a 401(k) plan with a small income stream, which is guaranteed. Although these plans are essentially equivalent to two different kinds of retirement plans, they are conveniently combined into one, making it much easier for companies to administer. There is much less paperwork involved for a company to administer one single DB(k) plan as compared to a 401(k) plan plus a pension plan. The DB(k) plan is a relative newcomer to the retirement plan arena, with Congress authorizing it during the 2006 Pension Protection Act. The overall intention of this plan was to compensate for a perceived flaw in the existing pension and retirement fund systems, which is the possibility that a person may run completely out of money after retirement when their 401(k) funds are depleted.
Are there any specific advantages to a DB(k) plan?
These plans can provide a good alternative to plans which are designed for only voluntary employee contributions. Especially in the current economic climate, with the stock market in fluctuation, the DB(k) plan can provide an extra measure of security. Instead of simply receiving a lump sum of money at retirement, as is the case with a 401(k) plan, a DB(k) plan will also provide a small ongoing pension amount. The amount of pension provided is far less than traditional pension plans provided in the past, but it can still help to protect people who may run out of money after their lump sum of retirement funds are depleted.
What are some of the features of a DB(k) plan?
There are a number of requirements that must be satisfied in order for a company to set up a DB(k) plan for its employees. In addition to satisfying the required number of employees, these plans must also provide an automatic enrollment option for the contribution portion of the plan. There are also requirements for how the defined benefits portion of the plan is to be administered, based on a percentage of years of service calculated along with the average final rate of pay. After the designated years of service, employees become fully vested in the plan. By implementing a DB(k) plan, employers can help boost the retirement savings for their employees, while providing cost-savings benefits for the company itself.
