The number of new cash balance plans adopted by employers increased 15% in 2016 (the most recent year that full 5500 data is available), compared to a 1% growth in 401(k) plans.
Why have cash balance plans experienced so much growth?
Several factors contributed to the increased popularity of cash balance plans including rising tax rates (incentivizing business owners to take full advantage of the tax savings offered in a cash balance plan) and the retirement savings crises among baby boomers.
Cash balance plans also offer the higher contribution limits of a traditional defined benefit plan with the flexibility of a 401(k) plan, further contributing to their appeal.
What states are experiencing the largest cash balance plan growth?
As noted in the NAPA Net article Cash Balance Plans Top $1 Trillion, “California and New York account for 25% of all new cash balance plans followed closely by Texas, Ohio, and Florida. However, the fastest growth has been in Georgia and Michigan; Georgia had close to 29% year-over-year growth in new 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 contact David Paauwe, MSPA, EA at firstname.lastname@example.org.