A Defined Benefit Pension Plan is a type of a pension plan sponsored by an employer that gives the maximum possible benefit to the participants. It is an ideal solution for someone who is a business owner or a self-employed individual as it can help save for retirement while lowering taxable income.
Advantages of a Defined Benefit Pension Plan
- Substantial benefits (read money) can be provided and accrued within a short time – even with early – retirement
- Employers may contribute (and deduct) more than is permissible under other retirement plans such as Defined Contribution Plans
- Plan provides a predictable and guaranteed benefit, and the benefits are not dependent on asset returns
- Plan can be used to promote certain business strategies by offering subsidized early retirement benefits
- The Defined Benefit Pension Plan favors older participants as they are closer to retirement and need to accrue benefits at a faster rate than younger participants.