Beginning in 2010, businesses with fewer than 500 employees will be able to offer their employees a new kind of retirement plan. Dubbed the DB(k), this option features a blended plan which promises the best of a traditional (defined benefit) pension and a 401(k) (defined contribution) plan.
My fellow Compensation Cafe blogger Becky Regan presents a well-written overview of this new plan option in her post today. From Becky's post...
The DB(k) is an attractive new option for an employer sponsored retirement plan that provides an opportunity to provide a strong retirement plan with fewer hassles and less financial drain than a traditional pension plan, according to Joan Pryde, Kiplinger's Senior Tax Editor. The DB(k) combines a 401(k) savings plan with a small guaranteed income stream to offer a blended plan that offers the best components of a traditional pension and 401(k) plan.
The key elements of the plan include:
•A defined benefit equal to 1% of the final average pay for each year of the employee's service, up to 20 years.
•The minimum pension benefit is payable to employees who work 3 or more years for their employer.
•An automatic enrollment feature for the 401(K) portion, with 4% employee contributions automatically deducted unless the employee specifically opts out.
•An employer match of at least 50% of the employee 401(k) contributions, with a maximum required match of 2% of pay.
Click over to learn more about the DB(k).
I concur with Becky's conclusion that this is a promising development for younger employees and their own retirement planning challenges.
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