Defined benefit plan questions

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Fictionme
Posts: 13
Joined: Thu Jan 25, 2018 10:06 am

Defined benefit plan questions

Post by Fictionme » Thu Jul 11, 2019 3:12 pm

I am a shareholder in a corporation that has a defined benefit plan. Everyone in the corporation is an equal shareholder. We range in age 35-65. I am deciding how much to contribute to my defined benefit plan. From what I am told, and understand, about this type of retirement plan is that the asset allocation is geared towards the more conservative side with aim of generating a 4-6% return. I have a few questions I was hoping you all could answer.

I believe younger employees have the option of putting 25-50K away, this limit rises as you get older. However you don't have control over asset allocation and thus cannot be as aggressive when you are younger. For example, a younger shareholder may want a 95/5 equity/bond split but that's not possible with this plan correct? so while its advantageous from the tax perspective it's somewhat limiting from the asset allocation standpoint. Would you still advise maximizing contributions?

What happens as the older shareholders retire and a downturn occurs? Are the remaining shareholders responsible for making up the shortfall? Also as an equal shareholder are all the remaining employees who haven't retired yet responsible for making up the shortfall? Or is it in proportion to how much you have contributed so far in your career? For example, if I put nothing into this plan for my entire career and then a downturn occurs in a period when many retired shareholders are drawing from the account will I have to makeup the shortfall if I am still working ?

Has anyone been part of a company with a self funded defined benefit plan that was acquired by a larger company? What happens to that money when the larger corporation acquires it?

Thank you

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Tyler Aspect
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Re: Defined benefit plan questions

Post by Tyler Aspect » Thu Jul 11, 2019 3:42 pm

I used to work for a corporation that had a defined benefit plan. They transitioned to a 401k program so that the defined benefit plan was frozen with no more incoming contribution. I remember a few years ago the defined benefit program was used to sweeten an early retirement program where the early retirement program subscribers received credits from the defined benefit program.

I believe this defined benefit program pot of money was just too tempting to leave untouched by the controlling corporation.

A 401k program can have its pain points too. Just different ones than defined benefit plans.
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Topic Author
Fictionme
Posts: 13
Joined: Thu Jan 25, 2018 10:06 am

Re: Defined benefit plan questions

Post by Fictionme » Thu Jul 11, 2019 8:44 pm

Our company actually has both the standard 401K along with the defined benefit plan. I’m trying to decide if it’s worth participating in defined benefit plan. I’m already maxing our 401K

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TexasPE
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Location: Southeast Texas

Re: Defined benefit plan questions

Post by TexasPE » Fri Jul 12, 2019 8:02 am

Our defined benefit plan [pension] was an annuity that was fully funded by the company. The benefit was a function of years of service, highest three years of salary, a social security offset and when you took retirement relative to age 65. The annuity formula was published so that you could see your accumulated and future benefit. The employee had no control over plan investments.
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