Cash Balance Plans are a type of tax-qualified Defined Benefit Pension Plan that looks a lot like a profit-sharing plan. They have increased in popularity in recent years for a number of reasons.
Contributions to the plan are tax deductible and investment return is tax deferred.
Higher Contribution Limits
Cash Balance Plans permit larger annual tax-deductible contributions and benefits than are possible with a 401(k) Profit Sharing Plan.
Cash Balance Plans can easily be designed to provide age neutral benefits to all employees or targeted allocation to specific individuals
Easy To Understand
Cash Balance Plans are easier for plan sponsors and participants to understand than traditional Defined Benefit Plans.
Work With 401(K) Plan
Cash Balance Plans do not require substantial changes to existing 401(k) Profit Sharing Plans to work well in tandem with 401(k) Profit Sharing Plans.
Benefits Defined In A Plan Document
Plan document provides for annual allocation and interest credit.
Interest crediting rate is usually a fixed rate between 3% and 5%. Some Cash Balance Plans now utilize a return based or market-based index. However, a low fixed interest crediting rate is much preferred due to concerns with reducing the maximum lump sum benefit limit and employee contribution cost increase based upon the use of market-based interest crediting.
Total value of plan assets is usually different than total value of Cash Balance benefits.
Many partners and professionals find Cash Balance Plans an excellent way to increase contributions to their retirement accounts. After designing over 1,000 Cash Balance Plans, we have found that the following are typically good candidates
What Should You Consider?
Can Cash Balance Contributions Change From Year To Year?
Cash Balance Plann
Many partners and professionals find Cash Balance Plans to be an excellent way to increase contributions to their retirement accounts. After designing over 1,000 of these plans, we have found that the following are typically good candidates.