Retirement

Defined Benefit Plan for Small Business

Would you like to provide yourself and your employees with a specific amount of retirement income? Do you want to make the highest deductible contributions possible to a retirement plan?

A Defined Benefit Plan could provide the highest level of tax-deductible retirement contributions allowed while providing participants with a lifetime monthly payment, or “benefit”, at the retirement age specified by the plan. Mandatory employer contributions are calculated actuarially each year. This is the only plan that can allow corporate contributions to exceed the Internal Revenue Code’s limit on defined contribution plans such as a 401(k) or profit sharing plan, and can be used in addition to a 401(k) or profit sharing plan.1 The plan may be best for businesses with consistent, positive cash flow and highly compensated owners and employees in their peak earning years.

FEATURES

Greatest possible retirement benefit for employees

  • Employer contributions can exceed those offered by other retirement plans
    (Maximum annual benefit is $195,000)2
  • Contribution levels calculated based on several variables, including age, compensation and retirement age

Tax savings

  • Mandatory employer contributions are tax deductible, and an employer can often make an additional tax deductible contribution to fund future required contributions
  • A plan may or may not offer a lump sum payment option

Flexibility

  • Participants can elect their retirement age, as low as age 553
  • Choice of vesting schedules
  • Wide range of investment choices
  • Can be used together with another tax-qualified retirement plan4

Administrative Requirements

  • Generally must pay insurance premiums (and may have other reporting requirements) through the Pension Benefit Guaranty Corporation (PBGC)
  • Must be funded at least annually and possibly as frequently as quarterly
  • All plan assets are directed by the plan fiduciary
  • IRS Form 5500 must be filed annually
  • Plans must offer benefit payments in the form of an annuity

Benefits

  • Highest employer tax-deductible contributions of any retirement plan for older and higher paid participants
  • Provides a specific amount of retirement income for participants; plan can include cost-of-living adjustments
  • Employees may be able to accumulate larger retirement benefits over a shorter time period
  • Not dependent on a participant’s ability to save
  • Ability to attract and reward certain employees
  • Can be paired with a 401(k) plan while not reducing benefits available under a 401(k) or other Defined Contribution Plan


WHO IT'S FOR


  • Small businesses with any number of employees, including:
    • —    Sole proprietorships
    • —    Corporations
    • —    Partnerships
  • Highly compensated owners with few employees
  • Owners and older employees seeking to make high contributions in a shorter time
  • Owners who are several years older than their employees
  • Businesses with stable incomes
WHAT IT DOES


  • Allows contributions above the limits of all other retirement plans
  • Offers flexible investment choices
  • Provides maximum possible tax deductibility to the business

SEE HOW YOU CAN ACHIEVE A RETIREMENT BENEFIT5
STAFFCURRENT AGECOMPENSATIONMONTHLY RETIREMENT BENEFITANNUAL TAX-DEDUCTIBLE CONTRIBUTION6% OF TOTAL ANNUAL FUNDING COST
Owner, Joseph52$245,000$16,250$120,63874.31%
Employee, John47$120,000$7,959$36,65222.58%
Employee, Sallie35$30,000$1,990$3,7292.30%
Employee, Jim25$20,000$1,327$1,3180.81%
TOTAL $415,000 $162,337100.00%

Merrill Lynch Solution

If you’re looking to take advantage of the investment expertise and flexibility that Merrill Lynch offers, the investment only account, through the Retirement Cash Management AccountSM (RCMA®), may be the right solution. The investment only solution allows you to buy, sell and hold a wide selection of investments and you can work with the TPA of your choice for recordkeeping, tax reporting and other administrative duties.

HOW CAN YOU GET STARTED?

For more information on the Defined Benefit Plan or other retirement plans, ask your Financial Advisor.

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Any information presented about tax considerations affecting your financial transactions or arrangements is not intended as tax advice and cannot be relied on to avoid tax penalties. Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. You should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with your personal professional advisors.

1 Defined Benefit plans have their own contribution limits under the IRC

2 Contribution limits apply to 2010. Amounts for subsequent years may vary.

3 Earlier retirement will affect overall lifetime benefit.

4 Subject to a combined deductible contribution if combined with a defined contribution plan

5 Benefit formula = 8% of average monthly compensation multiplied by total years of participation limited to 10 years. Based on normal retirement age of 65 (Safe Harbor formula, nondiscrimination testing not required).

6 Contributions are not allocated to each participant, but represent the annual cost of providing the monthly retirement benefit. Contributions have been calculated using 5.5% interest.

For Plan Sponsor Use Only.

Unless otherwise noted, registered marks and service marks are the property of Bank of America Corporation.

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