Common Misconceptions About Defined Benefit Plans (and Why They’re Wrong)
If you’re like most successful professionals, you’ve probably heard about defined benefit (DB) plans at some point—but almost immediately dismissed them.
“They’re too expensive.”
“They’re too complex.”
“Aren’t those just for giant corporations with union workers?”
“My CPA says to stick with a 401(k).”
“I’m not ready for something that involved.”
These are all common responses. And we get it.
For years, defined benefit plans have had a reputation for being inflexible, difficult to administer, and only appropriate for large employers. But the truth is, modern defined benefit plans—especially those customized for small professional practices—are one of the most effective, misunderstood tools in the retirement and tax planning world.
This chapter is here to clear the air. We’re going to debunk the top myths that keep high-income professionals from considering a defined benefit plan and show you why these assumptions are outdated—or flat out wrong.
And most importantly, we’ll show you how working with the right firm can turn what seems like a complex, costly endeavor into a streamlined, turnkey solution that saves you tens (or hundreds) of thousands of dollars a year in taxes while building secure retirement income.
Myth #1: “Defined Benefit Plans Are Too Expensive”
This is probably the most common objection we hear. And on the surface, it makes sense. A plan that allows you to contribute $100,000–$300,000 per year must come with a huge price tag, right?
Wrong.
While it’s true that defined benefit plans involve some administrative costs—actuarial valuations, IRS filings, plan setup—the expense is tiny relative to the benefits.
Let’s break it down:
Typical all-in annual cost (including actuarial, compliance, and investment management): $3,000–$5,000
Typical annual tax savings for a high-income business owner contributing $200,000/year: $80,000–$120,000
ROI: 20x or more, and that’s not even including tax-deferred growth.
By comparison, the average mutual fund expense ratio is over 1%—which means you’re paying more (on a percentage basis) for far less value in many traditional investment accounts.
If your CPA is telling you the plan is “too expensive,” they may be focused on the fee rather than the net tax savings and return on capital. We’re here to fix that.
Myth #2: “They’re Too Complicated to Manage”
We understand where this comes from. Defined benefit plans do involve more moving parts than a simple IRA or 401(k). But when you work with a full-service firm that specializes in DB plans, you never have to manage those moving parts yourself.
At our firm, we handle:
Plan design and customization
Actuarial calculations
IRS filings (Form 5500, Schedule SB)
Employee communication
Investment management
PBGC filings and premiums
Annual compliance testing
We package it all into a single turnkey service so that you can focus on your business—not your retirement plan paperwork.
You’ll get a clear contribution target each year, investment updates, and an annual review. That’s it. No chasing down vendors. No reading through tax code. Just results.
Myth #3: “Only Large Corporations Use Defined Benefit Plans”
This is a classic misconception left over from the 1980s and 90s. Back then, DB plans were mostly used by major corporations, unionized labor groups, and government agencies.
But today, the fastest-growing segment of defined benefit plan adopters is:
Solo business owners
Small professional practices
Partnerships and LLCs with 2–10 employees
High-income consultants and specialists
In fact, most of our clients are:
Doctors
Dentists
Lawyers
Accountants
Real estate professionals
Family businesses with under 15 employees
They’re not looking to run a pension for a thousand people. They’re looking to accelerate retirement savings, reduce taxes, and exit their business with financial security.
That’s exactly what a well-designed DB plan delivers.
Myth #4: “I’m Too Close to Retirement for a DB Plan to Make Sense”
Another myth is that you need 20–30 years for a DB plan to be worth it. Not true.
In fact, defined benefit plans are uniquely powerful for professionals in their 50s and early 60s because the IRS allows larger contributions as you get older—especially when your retirement age is closer.
We routinely design plans for clients with 5–10 years to retirement, allowing them to contribute:
$150,000–$250,000+ annually
For 5–10 years
Resulting in $1M–$2M+ in tax-deferred retirement savings
Even a 5-year plan can yield:
$1 million in contributions
$400,000+ in tax savings
Guaranteed lifetime income upon exit
There’s no other tool that allows you to catch up that fast, that legally, and that efficiently.
Myth #5: “I Already Have a 401(k)—I Don’t Need a DB Plan”
Here’s what most professionals don’t realize: you can have both. In fact, combining a defined benefit plan with a 401(k) is the most powerful strategy available for high-income individuals.
The IRS allows you to stack the two plans because they fall under separate contribution rules:
401(k) limits are governed by IRC Section 415(c)
DB plan limits are governed by IRC Section 415(b)
That means you can:
Contribute up to $69,000–$76,500 to your 401(k) + profit sharing
AND contribute $100,000–$300,000+ to your DB plan
All tax-deductible to your business
With the right plan design, this combo can result in $200,000–$350,000/year in pre-tax retirement savings—and that’s for a solo or small-practice owner.
We specialize in building “combo plans” that integrate your existing 401(k) with a new DB plan, maximizing contributions while staying compliant.
Myth #6: “The Rules Are Too Strict or Risky”
Yes, defined benefit plans must follow IRS and ERISA rules. But with a skilled plan administrator and actuary on your side, those rules work in your favor.
We ensure:
You meet minimum participation and vesting standards
Your plan passes nondiscrimination and coverage testing
Annual contributions stay within allowable ranges
You stay fully compliant with IRS, DOL, and PBGC requirements
Risk arises when DB plans are DIY or run by firms that don’t specialize in them. That’s why our all-in-one approach reduces your compliance burden to nearly zero.
And if your income varies year to year, we can design flexible contribution ranges to accommodate that variability.
Myth #7: “It’s Too Late in the Year to Start a DB Plan”
Another false belief is that you must start your DB plan in January for it to be effective. Not true.
You can start a defined benefit plan as late as your company’s fiscal year-end—and even later if you’re filing a tax extension.
That means:
Plans can be set up in Q4
Contributions can be made retroactively
Tax deductions can be applied for the current tax year
We often help clients open a plan in December, fund it in March, and still apply the deduction to the previous calendar year.
Our actuaries and CPAs work together to ensure all timing and filings are handled properly.
Myth #8: “My CPA or Advisor Said I Don’t Need One”
This may be the biggest myth of all—and also the most costly.
Many CPAs and generalist financial advisors simply don’t specialize in defined benefit plans. They’re great with tax prep, asset allocation, or bookkeeping—but DB plans require actuarial modeling, plan administration, and deep IRS compliance expertise.
In many cases, they’re simply unaware of what’s possible.
We’ve worked with hundreds of professionals whose advisors told them to stick with a SEP or 401(k), only to discover they could:
Deduct an additional $150,000+ per year
Save $60,000+ in taxes annually
Build $2–$4 million more in retirement savings over a decade
We welcome working with your existing CPA or advisor—we’ll bring the DB expertise, and they’ll stay informed every step of the way.
Why Our Firm Is Different
We built our firm to do one thing well: help high-income professionals use defined benefit plans to reduce taxes and secure retirement.
Here’s what we bring to the table: ✅ Plan design and actuarial modeling
✅ Full-service compliance and administration
✅ Integrated investment strategy
✅ Seamless coordination with your CPA
✅ Transparent pricing, no surprises
✅ Hands-off management for you, year after year
You don’t need to be a pension expert. That’s our job.
Summary: Busting the Myths, Unlocking the Value
Let’s recap the truth behind the myths:
❌ Too expensive → ✅ Costs are minimal compared to tax savings
❌ Too complicated → ✅ We manage every detail for you
❌ Only for big companies → ✅ Ideal for small practices and solo professionals
❌ Too close to retirement → ✅ Perfect for those with 5–10 years to go
❌ I already have a 401(k) → ✅ Use both to maximize savings
❌ The rules are risky → ✅ We keep your plan 100% compliant
❌ Too late to start → ✅ You can still set up and fund for this year
❌ My CPA said no → ✅ Let us model it and show the difference
You don’t have to guess. You don’t have to hope. You just need to see the numbers and have the right team behind you.
We’re here to make the complex simple—and the results remarkable.
Next Chapter: How to Get Started with a No-Obligation Custom Plan Design
We'll show you how to explore a defined benefit plan customized to your practice, your income, and your retirement timeline—at no cost and no commitment.
Would you like a downloadable PDF version of “8 DB Plan Myths” for your team or partners?