Charles Schwab Defined Benefit Plan: The #1 Question to Ask

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As plan administrators, we love working with Schwab. They have carved a niche as a technology-driven investment platform, offering a diverse range of financial products. But do you know much about the Schwab defined benefit plan? We do.

Schwab is a leading provider of retirement solutions, including defined benefit plans and other retirement structures. This post will focus on Schwab’s personal defined benefit plan.  

Schwab Personal Defined Benefit Plan

Schwab’s defined benefit plans allow self-employed professionals and small business owners to save aggressively for their retirement. Schwab offers plan setup, administration, maintenance and compliance services.

Extensive investment options is one of the defining features of Schwab’s defined benefit plans. Its technology-first approach makes it easy for account holders to choose and invest in different financial products.

Also, in addition to defined benefit plans, Schwab provides other popular retirement solutions, such as a solo 401(k), SEP-IRA, SIMPLE IRA, and similar retirement plans.

Do you need to have a Schwab plan?

If I want to choose Schwab as a custodian of my plan, I must set up a plan with them, correct?

No. Most of the people are unaware of the fact that they can have Schwab as their custodian even if they choose another third-party provider, like us, for their defined benefit plans. Working with a personalized service provider like Emparion provides them access to essential documents, including a trust agreement and a tax ID (EIN) for setting up a pension trust.

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There is little connection between the choice of your custodian and the provider of your defined benefit plan. However, you may find the process at small banks a bit complicated in comparison to their larger counterparts.

If you’re seeking a destination for your pension trust, Schwab is an excellent place to start with. A lot of investors are tempted to open a cash balance with their custodian; after all, it’ll make the entire process simpler. Call us a bit biased, but mega institutions like Schwab fail in providing personalized services to small businesses. That’s not just a whim, but the learning we have had with years of practical experiences.

We have worked with customers who spoke with Schwab’s representatives only to find out that these executives had little understanding of defined benefit plans. It’s not uncommon as customer support representatives usually work on simple retirement solutions, such as IRAs or Solo 401ks.

defined benefit plan rules

If you have a business with more than 100 employees, you may contact the institutional arm of Schwab for specialized solutions.

On the other hand, if you operate a small business with only a few key employees, these institutions may not be able to provide a befitting solution for your needs. Most of the leading custodians focus on their net assets under management than the entire setting up or administration process. They’re even better off with third-party administrators handling the nitty-gritty details of defined benefit plans.

Pros and Cons of working with Schwab

If you want Schwab as the custodian of your plan, you don’t have to have them write the plan document. Instead, you can choose a solution provider that understands your specific requirements and offers a custom plan, like Emparion, and then engage Schwab as your plan custodian.

Now that we’ve mentioned the most crucial point let’s analyze Schwab’s offering. As a small business owner, you may have specific retirement goals for yourself and your key employees, requiring a plan with a custom design. Leading institutions, like Schwab, fail to offer specialized services. Their solutions are designed for large businesses, with limited investment control or access to alternative assets.

If you want to invest in standard stocks, bond products, Schwab might work out to be an excellent choice, and we have nothing against them. However, if an institution of such size wants to remodel its management or administration fees and plan features, it’ll rarely seek the consent of its clients.

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A third-party administrator we provide critical features, such as flexibility, custom design, investment discretion, and access to alternative assets.

Emparion Defined Benefit Plans

We have built our business in line with the features our clients seek, with flexibility being our defining trait. You’re free to choose or transfer to different financial advisors or custodians (Schwab, Fidelity, or Vanguard) after we set up and install your plan.

At Emparion, we strive to provide a personalized experience, solution to our clients. Our representatives will start by asking essential questions, such as the size of your business, your age, your retirement/financial goals, a list of your key employees, and other relevant information.

Using this information, we’ll prepare a plan design (taking into account your requirements) that indicates your annual contributions and critical plan timelines.

We will:

  • Create a custom plan that meets your specifications;
  • Install your plan and associated documents (IRS EIN);
  • Appoint an actuary for your plan; and
  • Help you establish a custodial account with your choice of provider (Schwab, Vanguard, or Fidelity).

Look. We understand that establishing a defined benefit plan or a cash balance plan can be slightly overwhelming, and the fact that most of the financial advisors or CPAs find it challenging to answer your questions could make choosing the right provider even more difficult.

Let me emphasize that as the service provider of your defined benefit plan, we have no conflict of interest here. You’re absolutely free to choose any provider of your choice, and we’ll be more than happy to assist with the account setup process.

Emparion excels in providing access to self-directed retirement features to defined benefit plan owners. If you want to invest in alternative assets, such as precious metals, commercial or residential real estate, mortgage notes, hedge funds, commodities, or even digital assets, we’ll help you do that. If you are more into the conventional stock, bond, mutual fund investments, we’ll assist you all the same. Our plans work perfectly with all the major providers, including Schwab.

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If you don’t want to put all of your eggs in a single basket, we’ll help you diversify your retirement portfolio with alternative investments.

Setting up Schwab as your plan custodian

  • Find a TPA (third-party administrator) for your defined benefit plan. Your TPA should share critical plan details, including your annual contributions, cost of plan administration, and available investment options. They should also be familiar with cash balance plans.
  • Establish a defined benefit plan that works seamlessly with Schwab. The next step is to make sure that your plan is compatible with Schwab’s platform.
  • Set up an investment account with Schwab. The first thing you need to do after opening your account is investment allocation. We recommend clients to maintain a proportion between their plan’s crediting rate and investment allocation.
  • Fund your defined benefit plan. The last step in setting up your defined benefit plan is funding. Now, you don’t need to make your annual contributions straight away, and instead, we recommend making partial funding to initiate the proper functioning of your plan. You can make annual contributions up to the tax-filing deadline (including extensions).
  • File your taxes. Many don’t consider this part of the process, but we certainly do. Make sure you have communicated your plan with your CPA.

Final Thoughts on Schwab Defined Benefit Plans

If you’re an employer looking to open a defined benefit plan, understand that these plans aren’t a common marketplace solution. We have even encountered situations where representatives of leading financial institutions had very little knowledge of these plans.

Schwab has a reputation for excellent quality services, and there’s no denying about their superior level of customer support.

The crucial question is whether they can offer tailor-made solutions to your business. Does the plan have all the features you need?

Choosing a defined benefit plan is an important decision, not only for you but for your employees as well. Take your time through the research process.

Emparion can create and establish a custom defined benefit plan for your company within 3-5 business days. Additionally, our team will provide all the help you need in creating a custodial account with Schwab.

Defined benefit plans offer superior contribution limits, along with self-direction capabilities. Your business and employees are on the right way towards financial freedom.

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Paul Sundin

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