Get Alabama Defined Benefit List

(4) Benefits received from defined benefit plans including benefits received from nonqualified defined benefit plans such as excess benefit plans or supplemental executive retirement income plans (SERP's) are exempt from Alabama income tax to the extent that the benefits are taxable for federal income tax purposes.

This defined benefit program provides retired employees with a specific benefit payable monthly for the lifetime of the member. Upon service retirement, employees are also eligible to join the state's Public Education Employee Health Insurance Plan (PEEHIP). Rates for this plan vary based on years of TRS service.

The advantages of defined benefit plans are fixed payout, protection from market fluctuations, tax benefits, and increased employee retention. The disadvantages include the limited potential for growth of investments, vesting period, and employer cost.

Defined Benefit Plans generally require the employer to make annual contributions. The amount required is equal to the value of benefit increases for the year plus a 15-year amortization of any unfunded liabilities.

A pension benefit formula that determines the benefit by multiplying a certain percentage (up to 2%) of the average earnings by the years of service (i.e. monthly pension = 1.5% x average monthly earnings x years of service). For example, assume that the employee earned an average of $30,000 per year during his career.

IRA and 401(k) distributions in retirement: Taxed in Alabama Even though traditional pension benefits aren't subject to tax in Alabama, amounts paid through IRAs and employer-sponsored defined-contribution retirement plans such as 401(k) plan accounts are included in taxable income for Alabama income tax purposes.

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement.

Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute (and therefore deduct) more each year than in defined contribution plans.