Defined Benefit Plans Become More Valuable
An article in the September issue of Watson Wyatt's Insider discusses how defined benefit plans have become increasingly more valuable in the last five years.
Excerpt:
As interest rates have declined over the past five years, sponsoring defined benefit pension plans has become increasingly expensive — as plan sponsors are well aware. Plan participants, on the other hand, often do not fully understand or appreciate how much their defined benefit plans are worth. For most workers who participate in a typical pension plan, the value of their pension benefits has grown at a significantly faster clip than their 401(k) account balances over the past five years.
However, for some closely-held companies it's not necesarily a question of either/or. It can be both a defined benefit plan and a 401(k) plan for those business owners "hearing footsteps", i.e., getting closer to retirement with not enough retirement savings - the qualified plan rules being satisfied, of course.