Who Offers Defined Benefit Plans?

Who Offers Defined Benefit Plans?

Any employer can offer a Defined Benefit plan, but not many do anymore.

Before the introduction of Defined Contribution Plans, most large corporations such as General Electric, General Motors, etc. offered only Defined Benefit Plans. Over the years, it has put a huge burden on these corporations to guarantee the performance of these plans.

If the plan has not performed according to the assumptions, the company would have to contribute the difference, which would have to come from their profits. In order to shift the burden to the employees, most companies now offer Defined Contribution Plans (such as 401(k)s, etc.) instead of Defined Benefit Plans.

The plan participant bears the investment risk in defined contribution plans. This is why it has become so important for you to be an informed and active participant in your retirement planning.

See our articles about defined contribution plans for more details (located in the ‘Retirement Accounts’ section).

Pensions have always been popular with union groups, and they use collective bargaining to set up plans across multiple employers. Many pensions, especially multi-employer pensions such as union arrangements, have struggled to remain fully-funded up to actuarial standards in the last decade or two.

Businesses which are not very large or who do not have a significant profit margin should not attempt to use a defined benefit plan. An excise tax will apply when the plan Is underfunded, and the administrative costs of defined benefits plans are higher than any other form of retirement plan. (IRS information on Excise Taxes — found here)

How Does a 401(k) Compare With Other Retirement Plans?
How Do I Allocate My Assets in Retirement?