Vanguard Defined Benefit Plan: The Quick Step Guide

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Vanguard is a great custodian and has been a leader among the online brokerages. But do you know much about Vanguard defined benefit plans? We do. So we’ll give you some insight.

At Emparion, we deal with many plan providers. But be careful. The defined benefit space can be complex. Most people don’t really understand how they work. Many of the large custodians and brokers don’t understand them very well.

The Vanguard Defined Benefit Plan

Let’s get this out of the way. We really enjoy working with Vanguard. They have a great service offering and provide a low-cost structure. But many business owners don’t know that Vanguard exited the small business defined benefit plan space awhile back.

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If you have a large company with hundreds of employees they can usually work with you. But this just isn’t a cost effective option for most small businesses or folks looking for a personal plan.

You would have to ask them directly why they did this. But I think the main reason is that they want to focus on their custodian business. They will tend to refer out the administration to other providers like us.

I think this suits them just fine because they still get the assets under management and don’t have to deal with the administration headaches. This works out well for us.

Many of our clients use Vanguard for their defined benefit plan funds. They are probably in the top three along with Schwab and Fidelity. With the low cost approach, discount fees, and substantial investment choices, this has made them tough to beat.

In many situations, folks already have other accounts with Vanguard. So naturally that is the first place they check. In fact, they may already have another retirement plan with them. This makes it easy to manage multiple accounts without using multiple platforms. Does it really make a lot of sense to have different custodians? Probably not.

Setting up your personal plan

So it makes perfect sense that folks inquire first about Vanguard defined benefit plans. However, most don’t know that you can use Vanguard as the investment custodian and have the plan set up and administered by someone else. This is the best option for many people.

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When we set up a plan, it comes with a pension trust document. Using this document at your local bank can be difficult. But with large brokerages like Vanguard it can be really simple. We can even help you get the account opened up.

So how does it work?

The critical part for business owners to know is that the plan does not have to be established  with Vanguard for the assets to be held there. These are two different things. Vanguard is the custodian and the plan administration is handled by a third-party administrator (TPA).

rules requirements

We know that business owners want maximum control over their retirement accounts. When a plan is set up and held directly at a custodian, there might not be as much flexibility as you would like. As a result, you stuck with their investment options.

If you are happy with your custodian then this might not be such a bad thing. But what happens if the investment options or the platform changes at some point? You might be looking to change, but you find yourself stuck with a defined benefit plan that needs major amendments.

Emparion Defined Benefit Plans

What’s especially nice about our plans is that they are portable. They can be used at Vanguard or virtually every other brokerage or custodian.

We do our best to differentiate ourselves from other providers and offer a turn-key solution. All we need is to have some general information like business profit, age, employee payroll and we can provide a tailored solution. But new clients may need a little more hand-holding. For them we provide:

  • Free illustrations with potential tax savings;
  • Customized plan documents and IRS tax id;
  • A complete document review by our actuary; and
  • Coordination with personal tax professional and financial advisor (such as Vanguard).

Defined benefit plans can be complex. In fact, most CPAs and financial planners don’t even understand them. You can’t expect most custodians to know how to customize plans.

But in our situation, we aren’t financial advisors so we don’t have a conflict. We structure your plan based on your business situation and you use the custodian of your choice. We can even work with you to get your brokerage account set up.

With our plans you can invest in just about everything with Vanguard. But the key is that you can also you it at another custodian or even invest in other assets like real estate.

How to set up a Vanguard defined benefit plan:

  • Find a qualified third-party administrator (TPA). As noted, Vanguard doesn’t have an offering for small business owners. You must find a third-party administrator that will allow you to use the Vanguard investment platform.
  • Set up a custom plan document. Once you hire a TPA, get a tailored document that will allow for Vanguard investment options. Most independent TPAs can accomodate this request.
  • Establish a Vanguard brokerage account. Take the plan document and EIN to Vanguard and sign the account application. You can then select the investment choices.
  • Get the plan funded. This is usually the easy part. But the important point to note is that you have up to the tax filing date (including tax extensions) to fund the account.

Bottom Line on Vanguard Defined Benefit Plans

Like we have said, Vanguard is a great custodian and we enjoy working with them. But if you are a small company with a few employees or just looking for a personal plan, they will likely not have a solution for you. At the end of the day, most custodians just want to add more funds to their platform. They are fine allowing third-party administrators (like us) set up the plans.

Looking for more information on cash balance plans? Take a look at our ultimate guide to cash balance plans. Discover our favorite strategies!

The choice is up to you. Whatever you choose to do, if you are successful business owner, a defined benefit plan may be your best retirement decision.

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Paul Sundin

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2 thoughts on “Vanguard Defined Benefit Plan: The Quick Step Guide”

  1. If I have a plan set up through you do you set up the accounts with Vanguard or do I do it myself? I am just not sure what the process is?

    • Hi Colleen – We have a couple reps at Vanguard that we work with. We send the final plan documents to you with their contact information. All you need to do is just forward the plan documents over to them and tell them you are working with Emparion and they will take care of you. We try to make the process very streamlined!


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