Also referred to as “eligible combined plans” in IRS parlance, DB(k)s were created in the 2006 pension reforms and scheduled to debut on Jan. 1 of this year. Even so, progress has been slow, so it may be 2011 or later before they’re anything close to common.
One part of the DB(k) is a company-funded pension plan intended to provide the employee with a regular income stream in retirement. That part may take either of two forms: a defined benefit based on final salary and years of service, or a cash-balance plan that converts from a lump sum into an annuity at retirement.
The other part will be a 401(k) plan funded by the employee through automatic pre-tax deductions and supplemented by an employer match. Employees will be able to opt out of the automatic deduction provision if they wish.
The appeal of a DB(k) to employees will be a predictable cash flow in retirement, in addition to their monthly Social Security benefits. For employers, the plans should be less onerous to administer, according to Joni Tibbetts, vice president of retirement and investor services at The Principal Financial Group. Her company, along with the American Society of Pension Professionals & Actuaries, helped devise the concept.
—Greg Daugherty
Greg writes the “Retirement Guy” column each month in our Consumer Reports Money Adviser newsletter.
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