Defined Benefit Retirement Plans

This is termed a qualified plan by the IRS and allows business owners to contribute over $300,000 a year in certain cases where you combine a 401k profit sharing and cash balance plan. The ages of the employees are a big factor in determining the contribution along with years of service which has to be done by an actuary and can't be discriminatory between employees. A defined benefit plan determines how much each participant gets in retirement. These sort of plans are best when there are few employees and the owner is much older than the other employees. The administration cost of defined benefit plans are about $1,500 a year now vs. $10,000 ten years ago. I believe actuaries are benefiting from better computers. One disadvantage is that you have to contribute every year even if you are having a bad year so the business should be profitable for at least three years in a row to consider such a plan.