One of the financial advantages of being the sponsor of a defined benefit pension plan is that the contributions to the plan are deductible for tax purposes, up to a legally prescribed limit. This allows the plan sponsor to integrate its retirement plan into its firm-wide tax planning strategy.

Plan sponsors experience increased costs during periods of poor investment performance, resulting in larger than expected minimum required contributions.  These costs can be avoided by using an investment allocation which minimizes funding shortfall risks by matching the fluctuation in the plan’s liabilities with the fluctuation in assets.  

Some plan sponsors lower or eliminate future benefit accruals or close the plan to new participants as a way to control costs.  However, there potentially less drastic solutions for sponsors concerned about the costs of sponsoring a defined benefit plan.

If you have questions about managing the costs associated with your pension plan, please contact a Nyhart pension professional.

This article was last updated on January 3, 2012