A cash balance plan is a defined benefit plan that specifies the benefit as a hypothetical account balance. Each year, the hypothetical account is credited with a principal credit and an interest credit, as defined in the plan document. These plans are required to permit an annuity form of payment, but the standard form is a lump sum equal to the amount of the hypothetical account balance. The employer contributions made to a cash balance plan are not discretionary, since they are subject to the minimum funding requirements applicable to defined benefit plans.

Watkins Ross has been designing and administering cash balance plans to provide strategically targeted benefits and increased tax deferred savings since 1999. If you have additional questions or would like help determining if you should implement a cash balance plan, please call David Paauwe, MSPA, EA at 616.742.9211.

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