Defined Benefit Plan Administration Can Deliver High-Quality Pensions to Your Employees
Employer-sponsored pension plans can significantly enhance employees’ compensation packages. A strong plan rewards loyal employees for their years of service, and it can help attract highly qualified prospective employees. Hiring a firm that specializes in defined benefit plan administration makes it easy for businesses to provide high-quality pension plans for their employees.
What is a Defined Benefit Plan?
A defined benefit plan is an employer-funded pension plan. Employees’ payments are based on their average annual income and time with the company, and their benefits are expressed as a percentage of their annual income. Employees can receive their benefits as a lump sum or monthly payments that last for their lifetime, or they can roll their benefits over to an IRA account.
Unlike a direct contribution plan, such as a 401(k) or profit sharing plan, contributions to a defined benefit plan are often made by the employer. In direct contribution plans, employers may contribute to the plans, but employees also typically have to contribute as well. These contributions may be used to lower a business’ tax burden.
What Types of Investments Can Defined Benefit Plans Invest In?
In general, defined benefit plans can invest in most market-based investments that individuals would consider. Plans are usually able to purchase stocks, bonds, mutual funds, real estate investment trusts (REITs), and government securities.