Don’t Forget About Traditional Defined Benefit Plans as a Sales Opportunity!


While the establishment of a cash balance plan is an easy sell for certain small employers, traditional defined benefit plans also present a great sales opportunity.

During the 70’s and 80’s, the traditional defined benefit plan was the plan design choice, especially for hospitals, manufacturers, steel companies  and numerous other blue-collar labor type industries.  Our fathers and/or grandfathers most likely had or have a pension paid from a traditional DB plan.  While the number of surviving traditional DB plans has significantly dropped, these plans do still exist.  In just Pennsylvania and West Virginia alone, there are over 2,500 traditional DB plans still in existence.  Add in Ohio and the number doubles.  In addition, more than half of these plans hold assets of between 1 and 50 million dollars.  These numbers do not include owner only traditional DB plans, or Solo-DB plans.

Retirement savings plan management | Dunbar, Bender & Zapf

While new traditional DB plans are not generally being adopted as a plan design (except for the Solo-DB), existing traditional DB plans may present a great sales opportunity for the financial advisor.  Due to a volatile financial market and low interest rate environment over the past 10-20 years, employers cannot afford to terminate these plans.  Even traditional DB plans that are fully funded on a termination basis (lump sum basis) may not be able to terminate due to annuity costs.

Most existing traditional DB plans have already frozen benefit accruals or have at least frozen entry to new participants.  Employers that freeze their DB plan often choose to add a 401(k) plan with an employer contribution to make up for participants’ lost benefits in the DB plan – thereby providing an additional sales opportunity.

When coming across this type of opportunity, contact DBZ.  We will assist you in determining:

Is the plan paying too much in fees?

Is the investment allocation appropriate to meet the target interest rate?

Is the plan frozen, or if not, should it be?

Is the employer looking to terminate the plan?  If so, do they know what their funding liability is on a termination basis including estimated annuity costs?