Defined Benefit Plans

Any business, whether a C Corporation, S Corporation, partnership or sole proprietorship can establish a Defined Benefit Plan. Tax-deductible contributions are made from the Company to the Defined Benefit Plan Trust, in order to satisfy future liabilities to participants. The employer's annual tax-deductible contribution must be determined actuarially and be sufficient to enable the fund to meet its liabilities as they come due in future years. These plans produce the largest IRS allowable tax-deductible contributions of all Qualified Retirement Plans.

A Defined Benefit Pension Plan is established so that the amount of the employee's retirement income is fixed, defining the benefit in advance by the plan's benefit formula. This formula is based on the participant’s highest 3 consecutive years of compensation. Put another way, a participant with a long employment history may earn large current benefits (and corporate deductions), while receiving little or no taxable wages from the company.

The reasons a Defined Benefit Plan would be considered for a very small business are:

  • The business owner has little to no employees, and is looking for the largest possible current tax deduction.
  • The business owner is looking to accumulate a substantial amount of money for retirement, as soon as possible.
  • The business owner is considering an asset sale of the business, and is facing a large amount of taxable ordinary income from the transaction.

With the recent Congressional law changes regarding Defined Benefit Plans, they have become a great boon to someone looking to shelter the most amount of income, in the shortest time. They should be designed with the greatest amount of flexibility, and communication with the Actuary who will be certifying the annual reports to the IRS is the key to the successful adoption and maintenance of a Defined Benefit Pension Plan. Enterprise Pensions, Inc. was founded with the ideal that no business is too small to expect this type of service.

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