Pros and Cons of a Retirement Plan:

Pros:

• Larger Tax Savings than a Defined Contribution plan.

• Tax credits available for employers with at least one "rank & file" employee.

• Tax-deferred growth of plan assets.

• Can make up for lost time.

• Structured path to building a retirement nest egg.

• Can invest plan assets in a number of different avenues (i.e., mutual funds, stocks & bonds, real estate, start-ups, precious metals, etc.).

• Retention of valuable employees by providing retirement benefits to employees.

Cons:

• Mandatory contributions each year.

• If plan assets incur losses, larger contributions are required in order to make up the difference.

• Most DB plans must be covered by the Pension Benefit Guarantee Corporation (PBGC), which adds complexity and extra costs (i.e. $105 per plan participant, per year).

• Annual reporting requirements (i.e., Form 5500 filing with IRS).

• Administratively complex and cost money to set up & maintain.

• Shutting down a DB plan can take several months (especially for plans covered by the PBGC).

• Eventually retirement benefits are taxable.

Defined Benefit Plan:

Defined Contribution (i.e., 401k) Plan:

Pros:

• Flexible annual contributions.

• Tax credits available for employers with at least one "rank & file" employee.

• Tax-deferred growth of plan assets.

• Can choose between pre-tax and after-tax (i.e., Roth) deferrals.

• Structured path to building a retirement nest egg

• Retention of valuable employees through company matching and/or discretionary employer contributions.

Cons:

• Smaller Tax Savings than a Defined Benefit plan.

• Some employer contributions are mandatory if plan is not Safe Harbor and/or is Top Heavy.

• Annual reporting requirements (i.e., Form 5500 filing with IRS).

• Administratively complex and cost money to set up & maintain

• Eventually retirement benefits are taxable.