DB/DC Combo Plans: Utilizing a Defined Contribution Plan & a Defined Benefit Plan
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Retirement plans fall into one of two categories: Defined Contribution (401(k) Profit Sharing) Plans and Defined Benefit Pension Plans

Defined Contribution Plans, also known as retirement savings programs, cover a broad range of programs such as Profit Sharing and 401(k) Plans. These types of programs allow owners and employees to make contributions that are allocated to individual participant accounts. They generally favor younger employees who have a longer time horizon until retirement.

Defined Benefit Pension Plans come in two varieties: Traditional and Cash Balance Pension Plans. Both promise participants a specific monthly lifetime benefit amount at retirement. Contribution amounts are calculated and adjusted annually to ensure that the target goal is reached. Contributions for all the plan participants are kept in a single account or “pool” that is used to pay the promised benefits. These types of plans tend to favor older, highly compensated business owners, partners and key employees who are in their peak earning years with a shorter time to retirement. They offer a way to quickly increase retirement plan assets.

A combination of these two Plans, referred to as a “Combo Plan,” can accomplish both a significant tax deduction and wealth accumulation objective in a way that a standalone defined benefit or standalone profit sharing plan cannot.

This highly sophisticated plan design layers a 401(k) Profit Sharing Plan together with a Cash Balance or traditional Defined Benefit plan, helping owners significantly reduce their taxes while hyper-funding their trust accounts.

Combining these Plans also allows you to maximize the benefits for owners and highly-compensated employees, and at the same time provide a minimum type of benefit formula to younger employees.

Combo Plans work best in the following situations:

  • Owners or Principals looking for a tax deduction of more than $61,000 or are making more than $285,000 per year*
  • Successful businesses with stable profit streams for companies of all types and sizes
  • Older, highly compensated owners who need to compress 20 years of savings into 10
  • On average a younger group of employees

*2019 numbers

Third Party Administrators: PlanPerfect

It is important to have a retirement plan that works for you. Combination plans offer a solution that allows companies to combine some of the most powerful investment vehicles: a defined benefit plan and a defined contribution plan. PlanPerfect is with you every step of the way to streamline the plan design and administration process. Contact us today for a consultation!