A Defined Benefit Plan Also Called A “Final Salary Plan” Guarantees The Employee A Future Pension, Based On Their Final Year’s Earnings. Benefits Are Calculated As A Fixed Percentage Of Your Final Year’s Earnings For Each Year Of Employment. This Means That If You Worked For The Same Employer For Many Years And Were Highly Paid In Your Last Position You Will Likely Receive More Than Someone Who Worked For Fewer Years And Was Paid Less In Their Final Position. If You Leave Early, Your Pension Is Reduced Or Eliminated. The Defined Benefit Option Doesn’t Have An Employer Matching Contribution, That’s Where A Defined Contribution Plan Comes In.
What is a defined contribution plan?
A Defined Contribution Pension Is Based On The Contributions That You And Your Employer Pay Into An Investment Fund, Therefore It Depends On How Your Investments Do As To The Amount Of Money You’ll Receive When You Retire. The “Defined” Part Means That There Are Strict Limits On What Benefits Will Be Paid Out By The Pension Plan—It All Depends On How Much And For How Long Your Contributions Were Made, As Well as Market Performance. Flexibility Stretches Beyond This, Though: If There’s Some Missed Opportunity To Save—Say, For Example, If You Need More Than One Year To Earn The Maximum Matching Contribution, You Can Make Up The Difference In Later Years. A Defined Contribution Plan Usually Has An Employer Matching Contribution–In Addition To Your Own: Typically 50% Of What You Put In Up To 6%.
Why do we offer defined-contribution plans?
When Your Company Offers Both A Defined Benefit Plan And A Defined Contribution Plan It’s Called Multiple Employer Welfare Arrangement (MEWA). MEWAs Are Generally Regulated As Insurance And They Must Be Licensed By State Department Of Insurance. Under US Federal Law All Contributions Made By Employees Are Fully Insured By The US Government That Is Any Money Paid Out Upon Retirement Or Upon Termination Before Retirement Comes From This Fund And Is 100% Guaranteed.
How does an employee participating in a MEWA plan receive contributions?
The Employer Sets Up A Defined Contribution Account For Each Employee Participating In The MEWA Plan. Employees Can Make Contributions To Their Individual Accounts By Direct Debit Or Check At Their Option. Allocations Are Made Once Per Month, Providing You Have Funds Existing Your Account Ranging From $0-20,200 (2017 Limit). If You Have More Than $20,200 Invested Please Contact Us As To What Your Options Are To Open Another Account With Households & Company Or Transfer You Amount Above This Limit To A Separate Retirement Investment Account. Every Three Months We Will E-Mail An Electronic Reminder To Help You With This. No Contributions To A MEWA Plan Can Be Made If Funds Exist Its Own Separate Retirement Accounts.
Why should I take advantage of the 401K plan offered by my company?
401 K Plans Offer Easy Tax Savings, Especially The Company Matching Contribution And Employee Flexibility Of Rolling Over Your Assets As The Balance Increases Or Decreases. Many Plans Also Offer An Auto Enrollment Option Where You Get Started Immediately By Simply Allowing The Employer To Take Whatever Amount They Want Out Of Each Paycheck For Investment In Their Plan—You’re Never Locked In So Even After Getting Used To Contributing Every Month, There are No Penalties If You Decide To Stop Making Contributions.