Where to Purchase Defined Benefit Plan

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southerndoc
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Where to Purchase Defined Benefit Plan

Post by southerndoc » Sat Jun 08, 2019 1:38 pm

I'm looking for other ways to put away retirement savings for tax deduction. I'm already maxing out a Solo 401(k) with both employee and employer contributions and plan to start a backdoor Roth this year.

I was looking into defined benefit plans. I was going to get a quote from Vanguard, but I saw in a press release that they are no longer administering defined benefit plans.

Any recommendations who to go with? Who has the lowest fees/administrative costs?

Broken Man 1999
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Re: Where to Purchase Defined Benefit Plan

Post by Broken Man 1999 » Sat Jun 08, 2019 1:57 pm

Defined benefit pension plan
A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.
Wikipedia


A defined benefit plan is not for individuals to purchase, they are products for institutions. However, there is an insurance product that accomplishes the same goal.

If you are looking for specific income for life, you can do what many employers do to make good on their pension responsibilities, you can buy an SPIA (single payment immediate annuity). A SPIA might work for you, it might not.


Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

ERguy101
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Re: Where to Purchase Defined Benefit Plan

Post by ERguy101 » Sat Jun 08, 2019 2:48 pm

southerndoc wrote:
Sat Jun 08, 2019 1:38 pm
I'm looking for other ways to put away retirement savings for tax deduction. I'm already maxing out a Solo 401(k) with both employee and employer contributions and plan to start a backdoor Roth this year.

I was looking into defined benefit plans. I was going to get a quote from Vanguard, but I saw in a press release that they are no longer administering defined benefit plans.

Any recommendations who to go with? Who has the lowest fees/administrative costs?
www.dedicated-db.com is a highly recommended place

There is a $1250 initial fee, and a $1950 per year fee, and the first year you pay both fees. You can host the plan wherever you want (Fidelity, etc, I'm assuming Vanguard too)

ivk5
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Re: Where to Purchase Defined Benefit Plan

Post by ivk5 » Sat Jun 08, 2019 2:49 pm

Check out white coat investor, he has written a fair amount on setting up DBPs/cash balance plans including I think discussion of some specific providers.

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southerndoc
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Re: Where to Purchase Defined Benefit Plan

Post by southerndoc » Sat Jun 08, 2019 5:23 pm

Thanks, I'll take a look at WCI's site.

Broken Man, this is for my small business (sole proprietor) that will incorporate if needed to purchase one.

bsteiner
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Re: Where to Purchase Defined Benefit Plan

Post by bsteiner » Sat Jun 08, 2019 5:34 pm

You don't "purchase" a retirement plan. You set one up.

There are two basic types of retirement plans: defined benefit and defined contribution.

In a defined contribution plan, the employer decides on the contributions, but doesn't promise what the benefits will be. The benefits depend on the investment results. Profit-sharing plans, 401(k) plans and IRAs are examples of defined contribution plans.

In a defined benefit plan, the plan contains a formula that defines what the benefits are. An actuary determines each year how much the employer has to contribute so that, based on certain assumptions, there's likely to be enough money to pay the benefits. Government and large company pension plans are examples of defined benefit plans, as is Social Security.

You may want to consult with an actuarial firm as to whether a defined benefit plan is likely to make sense. The actuary can then design the plan for you.

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gasdoc
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Re: Where to Purchase Defined Benefit Plan

Post by gasdoc » Sat Jun 08, 2019 8:55 pm

ERguy101 wrote:
Sat Jun 08, 2019 2:48 pm
southerndoc wrote:
Sat Jun 08, 2019 1:38 pm
I'm looking for other ways to put away retirement savings for tax deduction. I'm already maxing out a Solo 401(k) with both employee and employer contributions and plan to start a backdoor Roth this year.

I was looking into defined benefit plans. I was going to get a quote from Vanguard, but I saw in a press release that they are no longer administering defined benefit plans.

Any recommendations who to go with? Who has the lowest fees/administrative costs?
www.dedicated-db.com is a highly recommended place

There is a $1250 initial fee, and a $1950 per year fee, and the first year you pay both fees. You can host the plan wherever you want (Fidelity, etc, I'm assuming Vanguard too)
Yes, I have a plan through Dedicated DB. And I do use Vanguard for the actual investments. And by the way, you do not have to incorporate to have a defined benefit plan; I have one as a sole proprietor. Best of luck.

gasdoc

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southerndoc
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Re: Where to Purchase Defined Benefit Plan

Post by southerndoc » Sat Jun 08, 2019 10:40 pm

bsteiner, I know what the difference between defined benefit and contribution plans are. As mentioned previously, I'm already maxing out my defined contribution plan through a Solo 401(k).

I'll check out dedicated-db.com.

ccf
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Re: Where to Purchase Defined Benefit Plan

Post by ccf » Sun Jun 09, 2019 4:31 am

You might want to look at Schwab too:

https://www.schwab.com/public/schwab/in ... nefit_plan

$1500 setup / $1500 annual fee for 1 person

(I know of it but have no experience but it. I applied but wasn't able to use their service for a business with employees and an existing 401k profit sharing plan at another institution, had to go with another TPA)

Eric76
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Re: Where to Purchase Defined Benefit Plan

Post by Eric76 » Sun Jun 09, 2019 6:47 am

What's the difference between a defined benefit plan and an annuity? I thought an annuity was a defined benefit plan.

Swansea
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Re: Where to Purchase Defined Benefit Plan

Post by Swansea » Sun Jun 09, 2019 6:57 am

You may want to check on the impact of buying a defined benefit plan in a low interest rate environment.

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gasdoc
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Re: Where to Purchase Defined Benefit Plan

Post by gasdoc » Sun Jun 09, 2019 3:40 pm

Eric76 wrote:
Sun Jun 09, 2019 6:47 am
What's the difference between a defined benefit plan and an annuity? I thought an annuity was a defined benefit plan.
A defined benefit plan simply calculates contributions in order to get to a specific dollar amount (the 'benefit") at retirement. Then the plan pays out the funds in different ways. In a single person defined benefit plan, it is too expensive to continue the plan into retirement, so most people roll the funds into an IRA and then close the plan. As with any IRA, part of the money could be used to fund an annuity.

gasdoc

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gasdoc
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Re: Where to Purchase Defined Benefit Plan

Post by gasdoc » Sun Jun 09, 2019 3:41 pm

ccf wrote:
Sun Jun 09, 2019 4:31 am
You might want to look at Schwab too:

https://www.schwab.com/public/schwab/in ... nefit_plan

$1500 setup / $1500 annual fee for 1 person

(I know of it but have no experience but it. I applied but wasn't able to use their service for a business with employees and an existing 401k profit sharing plan at another institution, had to go with another TPA)
I looked into Schwab as well. I preferred the investment options at Vanguard.

gasdoc

CRTR
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Re: Where to Purchase Defined Benefit Plan

Post by CRTR » Mon Jun 10, 2019 8:54 am

I used the Solo DB plan at Schwab for 5 years and terminated it a a couple years ago. I also had a solo 401k at Etrade at the same time. I did it as a sole proprietor. I was able to save an average of ~$200k/year. It was a very positive experience. On the other hand, the fee was 50% of what it is now.

Whether you do a Cash Balance plan or a Defined Benefit, that is a bit more complicated decision but not really that important . . . both will allow you to save a lot more pre-tax.

Rayd8tr
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Re: Where to Purchase Defined Benefit Plan

Post by Rayd8tr » Thu Jul 04, 2019 9:02 pm

gasdoc wrote:
Sun Jun 09, 2019 3:40 pm
Eric76 wrote:
Sun Jun 09, 2019 6:47 am
What's the difference between a defined benefit plan and an annuity? I thought an annuity was a defined benefit plan.
A defined benefit plan simply calculates contributions in order to get to a specific dollar amount (the 'benefit") at retirement. Then the plan pays out the funds in different ways. In a single person defined benefit plan, it is too expensive to continue the plan into retirement, so most people roll the funds into an IRA and then close the plan. As with any IRA, part of the money could be used to fund an annuity.

gasdoc
Hi gasdoc. I've heard good things about dedicated cash balance plan and thinking about it seriously. How do you invest the funds to hit the target interest credit rate each year?

thanks

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southerndoc
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Re: Where to Purchase Defined Benefit Plan

Post by southerndoc » Sat Nov 09, 2019 11:19 pm

gasdoc wrote:
Sat Jun 08, 2019 8:55 pm
ERguy101 wrote:
Sat Jun 08, 2019 2:48 pm
southerndoc wrote:
Sat Jun 08, 2019 1:38 pm
I'm looking for other ways to put away retirement savings for tax deduction. I'm already maxing out a Solo 401(k) with both employee and employer contributions and plan to start a backdoor Roth this year.

I was looking into defined benefit plans. I was going to get a quote from Vanguard, but I saw in a press release that they are no longer administering defined benefit plans.

Any recommendations who to go with? Who has the lowest fees/administrative costs?
www.dedicated-db.com is a highly recommended place

There is a $1250 initial fee, and a $1950 per year fee, and the first year you pay both fees. You can host the plan wherever you want (Fidelity, etc, I'm assuming Vanguard too)
Yes, I have a plan through Dedicated DB. And I do use Vanguard for the actual investments. And by the way, you do not have to incorporate to have a defined benefit plan; I have one as a sole proprietor. Best of luck.

gasdoc
@gasdoc Would you be willing to give me more details about your experience with Dedicated DB and Vanguard? I can PM you my private email or phone number if you're willing to give info. I'm probably going to set one up next year. I was told by Schwab to wait until I'm 50, but I've heard some conflicting information (I'm currently 44). I'm looking to max away income so I can decrease my tax burden. I work a lot, so I generate a lot of income. Would like to put away 100k+/year and I'm unsure if that will reduce ability to contribute to a Solo 401(k) that I'm currently maxing out. Also, curious how the TPA records contributions into the Vanguard account. I'm assuming you get a trust identification number and then establish a traditional investment account with a broker (in your case Vanguard) with that TIN?

camillus24
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Re: Where to Purchase Defined Benefit Plan

Post by camillus24 » Sun Feb 16, 2020 3:52 am

bump*

particularly interested in hearing the responses from gasdoc or anyone who has any additional insight (or whether this thread is still true)

Have a relatively young friend (40 yo M) who did Westpac solo DB and hates it for the fees /incompetence but chose it over Schwab because Schwab's actuarial calculations were ludicrously strict / rigid (~55K annual contribution for 5 years before plan "close" for Schwab vs. ~150K annual contribution for 5 years before plan "close" for Westpac). He is getting more details on the other assumptions both providers used as those numbers feel off now (i.e., shouldn't be that wide a difference even with differing retirement ages / return assumptions / discount values used given common cap for these plans)

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neurosphere
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Re: Where to Purchase Defined Benefit Plan

Post by neurosphere » Fri Jun 19, 2020 12:22 pm

I stumbled across this thread while researching defined benefit contribution plans, essentially just to educate myself. I have no need for one, or rather, don't have the necessary income to make it worth it!

Using schwab as an example, I see minimum fees of $1500/year to have the plan, and then another $4000-$6000 at plan termination. It seems like an expensive way to get funds into pre-tax accounts unless one has a lot of income or cashflow to invest each year. I suspect those who might benefit the most would be those with a lot of income and no other significant funds already in pre-tax accounts, and/or those who may retire early and can take advantage of low-cost Roth conversions.

It all comes down to, what's the value of pre-tax space? If one can make $200,000/year contributions for 10 years and pay $1500/year + $5000, that's a 1% cost of sorts. I suppose with common assumptions that cost can be seen as reasonable for access to that tax-deferral. But with $50,000 in contributions that's a 4% fee.

And I guess this also pre-supposes one is maxing out a solo 401k or other self-employed 401k plan with $57,000.

Anyway, I'm essentially just thinking out loud about who these plans are for. I have yet to read/learn about the funding requirements, for example, what contributions might be required each year and for how long. I wonder what happens if one is unable to fund the account for one or more years. Does the plan need to be terminated? Paused? On my to-do list to read about.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

bsteiner
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Re: Where to Purchase Defined Benefit Plan

Post by bsteiner » Fri Jun 19, 2020 12:27 pm

camillus24 wrote:
Sun Feb 16, 2020 3:52 am
bump*

particularly interested in hearing the responses from gasdoc or anyone who has any additional insight (or whether this thread is still true)

Have a relatively young friend (40 yo M) who did Westpac solo DB and hates it for the fees /incompetence but chose it over Schwab because Schwab's actuarial calculations were ludicrously strict / rigid (~55K annual contribution for 5 years before plan "close" for Schwab vs. ~150K annual contribution for 5 years before plan "close" for Westpac). He is getting more details on the other assumptions both providers used as those numbers feel off now (i.e., shouldn't be that wide a difference even with differing retirement ages / return assumptions / discount values used given common cap for these plans)
Hire your own actuarial firm. They'll work with you.

xiangg_li
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Re: Where to Purchase Defined Benefit Plan

Post by xiangg_li » Sun Aug 02, 2020 12:40 am

@gasdoc Would you be willing to give me more details about your experience with Dedicated DB and Vanguard?

ralph124cf
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Re: Where to Purchase Defined Benefit Plan

Post by ralph124cf » Sun Aug 02, 2020 6:47 pm

DW and I started a defined benefit plan with Schwab as the custodian 25 years ago, and terminated it by rolling it over to our IRAs four years ago. Schwab never charged us a set up fee, on going fee, or a termination fee. There was a significant set up fee from the actuarial firm, as well as an ongoing $950 accounting yearly filing fee. This DB pension accounting is NOT something that your local CPA is likely to be competent in. It really requires specialized knowledge. Schwab was compensated just like they are for being custodian of your IRA, by commissions on trades or expense ratios of their mutual funds.

With zero commission trades, and super low fund fees, this may have changed.

Ralph

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