Small, but lucrative corporations can set up a Defined Benefit Plan to be used as a tax hedge for savings. In 2015, a Defined Contribution Plan will restrict the amount of deductible contribution to 25% of W-2 salary or $55,000, whichever is less. In stark contrast, a Defined Benefit Plan allows the corporation to deduct a huge proportion (sometimes exceeding 100%!) of W-2 salary up to $260,000, depending on the age of the principal. In any event, a principal aged over 40 will find the retirement nest egg growing much faster (actually exponentially) under the defined benefit arrangement.

Very often, third party administrators recommend the use of a cash balance plan, which is a hybrid form of a defined benefit plan. While it may be easier to understand the growth of the hypothetical account, it is indeed hypothetical. Moreover, the granting of past service and the growth of benefits from future service are more easily handled in a traditional final pay defined benefit plan.