Who Should Consider a Cash Balance Plan? – Updated

Cash balance plans allow high-income earners to save more towards retirement than a defined contribution plan. Unlike a defined contribution plan where the maximum annual additions are limited to $55,000 per year (as indexed), the annual allocation limit in a cash balance plan depends on age. For example, the maximum annual allocation for someone age 50 is more than $150,000. So, who should consider implementing a cash balance plan? High-income earners that have been maxing out their profit sharing/401(k) contributions but would like to save more for retirement.

Accurate and timely administration of a Cash Balance Plan is critical to the success of the plan, so it’s imperative to enlist the right team of professionals. These Questions to Ask When Choosing an Actuary for Your Cash Balance Plan can help guide you in the process, but 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 dpaauwe@watkinsross.com.

You can read more about Cash Balance Pension Plans Compliance FAQs on the Employee Benefits Security Administration’s website.

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