Steps to Set Up a Defined Benefit Plan

Define Objectives

Before selecting the type and design of any retirement vehicle, business and retirement objectives should be defined. By determining the end goal, the proper solution can be provided. For example:

• What is the purpose of the retirement plan?

• What is the target retirement age and target retirement savings?

• How much per year would the business owner like to contribute? Do they prefer to front-load contributions or make more level contributions?

• What are the business cash flow needs?

• How many owners and employees does the business currently have and is that expected to change? 

Taking the time to discuss these questions is an important part of the process and will help guide the design of the Defined Benefit Plan.

Design Defined Benefit Plan to Meet Objectives

Implement and Fund the Defined Benefit Plan 

Based on the objectives, a retirement vehicle is selected. Depending on the business owner's goals, this may be a Defined Benefit Plan or another type of retirement option. 

After the plan type is selected, plan provisions are customized based on the retirement and business goals gathered initially.

Next, an illustration of the customized plan is provided. The illustration will show potential tax deductions and any employee benefits that must be provided. Feedback from the business owner could result in tweaks to the Defined Benefit Plan design until the overall design is approved.

After the plan design is finalized, the Plan document is drafted and sent to the business owner for signature.

The Defined Benefit Plan is adopted once the Plan document is signed. For a Plan to be effective for a given tax year, it must be adopted prior to the due date of the applicable business return (with extension).

The next step is to request an trust identification number, which will be attached to the Defined Benefit Plan assets. Additionally, required participant disclosures and notices are distributed. In some cases, an ERISA Fideltiy Bond will be required.

Finally, the Defined Benefit Plan is funded. Contributions must be deposited by the filing of the corporate tax return with extensions for the applicable plan and tax year. Regardless, for a calendar year Plan, contributions cannot be deposited later than the 9/15 following the year in which the Plan was adopted.