Even though underfunded defined benefit plans have received more attention after years of bear market returns, overfunded DB plans have problems as well and might occur with both large and small plans. In the case of small plans, the outstanding performance of a single equity or real estate investment -- or even the premature death of a highly-paid employee -- can create an overfunding issue.
Many Defined Benefit Plans have promised more benefits than they have assets set aside from which to pay. Such plans are said to be underfunded. The news regularly reports on the effect these underfunded plans have on the company’s bottom line. Clearly, an underfunded plan impacts the stock value as well as the return to shareholders; other stories focus on the risk involved for participants. Luckily, at least a portion of most plan participants’ benefits are guaranteed by the Pension Benefit Guaranty Corporation (PBGC).
Defined Benefit pension plans are powerful vehicles for benefit solutions and tax savings. Defined benefit plans come in the form of a traditional defined benefit plan and a cash balance pension plan, also known as a hybrid pension plan.
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