Articles Tagged ‘Pensions’

If We Freeze Our Pension and Move to a 401(k), How will Employees be Impacted?

Tuesday, June 28th, 2011

The impact of stopping benefit accruals in a defined benefit (DB) plan and using a defined contribution (DC) plan going forward depends on the employee’s age and years of service at the time the DB accruals stop.

For the employees within a year or two of retirement, a move to a DC plan will have very little impact because they have already earned almost their whole career’s benefit under the DB plan. However, employees still a decade or more away from retiring at the time of the DB plan freeze and who have earned ten or more years of service are often severely impacted.

Younger employees who only have a few years of service may benefit from the plan change, depending on the employer contributions to the DC plan. In fact, the DC plan will provide the younger employee with more years of investment earnings. In a good investment market, the benefits earned early in a person’s career may be the most valuable in a DC plan.

It is more difficult to predict the impact on mid-career employees. read full article »

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Small business owner: Use cash balance plans to increase retirement savings

Friday, June 3rd, 2011

Cash balance plans are defined benefit plans (pensions) that appear to the participant as being account balance based. Participants receive an annual statement displaying the amounts in their account, along with the amount the employer is crediting to them for the current year.

These plans are particularly useful for small business owners who need to accumulate a significant amount of retirement savings in a short period of time. If the owner needs to accumulate over $45,000 per year (the 2011 annual limit for defined contribution plans), has a steady cash flow, and is already providing a 401(k) benefit to employees, a cash balance plan may be the solution.

Depending upon demographics, a contribution of up to $200,000 could be attained for the owner, which could accumulate to over $2,000,000 in a cash balance account Other employees would also receive a contribution, but generally speaking they may only be 10%-20% of the total contribution to the plan.

Charles Munsell
Nyhart
www.nyhart.com

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