Cash Balance Plan

Tax Benefits & Accelerated Savings

Need to play catch up on retirement goals? A Cash Balance Plan is an IRS approved defined benefit plan. The dramatic growth in the cash balance plan market has come mostly from small to mid-size businesses. Yet these tax-efficient plans are also offered by leading national law firms, hospitals, and medical groups. Select Fortune 100 companies also use the Cash Balance Plan due to it cost effectiveness vs. older traditional defined benefit plans. Many firms use the Cash Balance Plan as a recruiting and retention tool in a highly competitive labor market. Cash balance plan benefits include:

Business Owner Benefits 

• Increased tax savings: ideal for employers who are looking to maximize savings and minimize employee contribution costs.
• Significant savings (may be over $200,000 a year subject to actuarial calculations)
• Design features to favor contributions for owners and other targeted employees
• Can be designed to equalize contributions between partners with different ages and goals
• Aids in recruitment and retention of key employees
• Can be used to to help fund an internal succession plan
• Helps to reduce business concentration risk by diversifying your assets

Employee Benefits

• Employer funded benefit
• Easier to understand than traditional Defined Benefit plans
• Portable account balances
• Tax‐deferred growth

Cash Balance plan contributions are calculated based on the employees’ ages, compensation and employee classes. Typically, these Plans favor owners or key employees, and are paired with a 401(k) plan to reduce contribution cost and satisfy nondiscrimination requirements. HCE benefit rates are compared to the NHCE rates to assure compliance. A Cash Balance plan works especially well where owners or key employees are generally older on average than the rank and file employees. Hypothetical tax and saving advantages are illustrated in the table below (your results will vary depending on your census data):