It seems logical to conclude our business retirement plan series with guaranteed pension plans. These plans are unique because benefits are guaranteed and there are no annual contribution limits. Both features accommodate significant tax-deferred retirement savings for the right companies.
There are many different types of retirement plans. Each serves a specific set of goals and circumstances. This month’s article focuses on pension plans – a rare but worthy option for select businesses.
Certain pension plans promise a guaranteed income stream in retirement. These plans are funded entirely by the employer. Annual contributions are mandatory and driven by return assumptions, life expectancies, and turnover expectations. Contribution formulas typically favor longtime owners approaching retirement. The reasoning for this is fairly simple: aging owners have longer tenures and shorter retirement deadlines.
Previous articles tracked the evolution of retirement plans. Readers learned that there are now leaner, less expensive, and more flexible alternatives to guaranteed pension plans. Still, guaranteed pension plans can be attractive due to their unique contribution rules. Pension plans accommodate substantial annual contributions, allowing aging owners to reduce their tax bills and jumpstart retirement savings goals.