Cash Balance Plans: Fast Facts & Planning Tips

Apr 13, 2016 | Cash Balance Plans

The National Retirement Planning Coalition has designated April 11-15 as the 2016 National Retirement Planning week. In celebration, each day this week Watkins Ross will share some fast facts and planning tips on the various types of retirement plans we service. Wednesday’s focus: Cash Balance Plans.


  • The number of cash balance plans in the US is growing at over a 20% rate, compared to a 1% growth rate for 401(k) plans.*
  • More than 25% of all defined benefit plans are cash balance plans, compared to less than 3% in 2001.*
  • Cash balance plans aren’t just for large employers. 87% of all cash balance plans are sponsored by employers with fewer than 100 employees, and the highest growth rate is among employers with fewer than 25 employees.*
  • Cash balance plans help ALL employees reach their retirement goals. The average total employer contribution to rank and file staff is over 6% of compensation in companies that sponsor both a cash balance plan and a 401(k) plan, compared to approximately 2.5% of compensation in companies sponsoring only a 401(k) plan.*
  • By incorporating a cash balance plan, a 55 year old business owner can contribute $97,000 to his retirement program on income of only $50,000.

* Cash Balance Plan statistics based on a Kravitz, Inc. review of publicly available IRS form 5500 data.


IS $53,000 ENOUGH?

Cash balance plans make sense when one or more employees or owners can benefit by contributing more than the $53,000 ($59,000 for catch-up eligible employees) to a retirement program. For example, the maximum allowable contributions can exceed $200,000 for employees who are over age 55 and have have at least $150,000 in income.


In more than half of all cash balance plans Watkins Ross administers, the estimated tax deferment on the cash balance plan contribution more than covers the added costs associated with offering a cash balance program.


Cash balance plans can be used to provide larger contributions to targeted employees. In fact, for every dollar a targeted employee might receive in a standard cross tested profit sharing allocation, he can generally receive at least 40-60 cents more in a cash balance plan, without increasing the total allocations to other employees.

Cash Balance Plan Sponsors Might Look Like You

Cash balance plans are especially popular for the following types of employers: professional service groups (particularly medical practice groups), multi-generational family owned businesses, and Single member S-Corporations taking Large S-Corporation distributions.

To learn if a cash balance plan might be right for your company or client, contact the team at Watkins Ross.

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