Cash Balance Plans

Cash Balance Plans

A cash balance plan is a pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest credits.

Accelerate retirement savings for Owners and Key employees while the company experiences large tax deductions.

Cash Balance Plans 

A cash balance plan is a pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest credits. 

Easy to understand, straight forward hypothetical account balance is established for each participant as follows: Beginning Balance + Contribution Credits (usually defined as a % of pay) + Interest Credits (defined in plan document, guaranteed interest) = Ending Balance.

Cash Balance Plans Allow Six Figure Contributions

Most people can contribute to their 401(k) without worrying about exceeding the annual contribution limit. If you’re under 50 years old, that’s $19,000 a year. If you’re 50 or older, it’s $25,000.

But a small and important segment of the population has the ability – and desire – to contribute significantly more to their retirement account. If you’re looking to save even more on taxes and put up to six figures per year into your retirement account, a Cash Balance plan may be the right choice.

This video below introduces Cash Balance plans, a retirement plan design that allows significantly higher contribution limits and drives faster asset accumulations than a 401(k). Watch this month’s video and read our blog on Cash Blalance Plans to learn more. If you’re intrigued, let’s chat and see if your situation and goals might be a good fit.

Advantages of a Cash Balance Plan:

  • Large tax deductions
  • For the company, money contributed to the plan is tax deductible now.
  • For participants, taxation on benefits is deferred until received as income.
  • Accelerated retirement savings for Owners and Key employees
  • Can vary contribution by owner or Key employee.
  • Employer’s liability is easily defined

Related to: Third Party Administrator, TPA, Retirement Plan Consultant, Employer Retirement Plan Consulting, Actuarial Consulting, Pension Consultant, Actuarial Services

Cash Balance Plans FAQs

How does a Cash Balance Plan work?

Each participant has an account which grows annually in two ways: first, a contribution and second, an interest credit, which is guaranteed rather than dependent on the plan’s investment performance.


Can Cash Balance plans be offered in addition to 401(k) Profit Sharing plans or other plans?

Yes, the employer can offer a combination of qualified retirement plans in order to produce a larger contribution.


What are the distribution options upon retirement or if leaving the employer?

Any vested account in a Cash Balance Plan can be paid as a lump-sum distribution or annuity. Lump sums are usually rolled over to an IRA.


Can Cash Balance contributions change?

Yes, but with restrictions. Cash Balance plans can be amended periodically to permit different contribution levels. Any changes must be made before any employee works 1,000 hours during a plan year. In addition, a plan can also be frozen or terminated.


Must everyone participate equally in the Cash Balance plan?

No. Each participant can have a different amount contributed for them.


Is the plan subject to IRS nondiscrimination testing?

Yes, like any other qualified plan, a Cash Balance Plan is subject to nondiscrimination testing. Employers can anticipate contributions in the range of 5% to 7.5% of pay for staff. The exact percentage required for employees depends on the results of nondiscrimination testing.


How do design and administrative costs compare with 401(k) Profit Sharing plans?

They are higher than a 401(k) plan because the plan is maintained by an actuary who needs to certify each year that the plan is in compliance with the Internal Revenue Code.

Reviews

Highly impressed with their level of expertise and outstanding customer service.

Highly impressed with their level of expertise and outstanding customer service.

I highly recommend TPS Group and their quality third-party administration for our 403(b) plan. During our long relationship with TPS Group, we have never failed to be impressed with their level of expertise and outstanding customer service. They keep their promises and it’s easy to work with them. Having our own rep Lauren McNabb is a plus!

- Don Senecal

"Extremely Helpful to Our Business"

"Extremely Helpful to Our Business"

Malinda deserves special recognition. She is prompt, courteous, and professional. We find her to be extremely helpful to our business.

- Angela Simino

"Wonderful To Work With"

"Wonderful To Work With"

My go to professional is Des. A wonderful person to work with. We can count on him to handle all of our needs.

- Andrea Blakeslee

"Answers All Of My Questions In A Clear Manner"

"Answers All Of My Questions In A Clear Manner"

Our case administrator, Susan, has been absolutely wonderful and is a joy to work with. She is very knowledgeable, patient, answers all of my questions in a clear manner, and is professional.

- Kathy Townsend

Extremely Valuable to Myself and Our Company

Extremely Valuable to Myself and Our Company

Kathleen has helped me gather info and understand text so many times and is extremely valuable to myself and our company.

- Elizabeth Robison

Very Responsive And Clear To Requests And Questions

Our service representative, Carol, is outstanding and very responsive and clear to requests and questions. Very professional yet pleasant.

- Jane Surmecewicz

They are a pleasure to work with and we highly recommend their services.

They are a pleasure to work with and we highly recommend their services.

For many years we’ve relied on TPS Group’s extensive knowledge and industry expertise to keep us in compliance with state and federal regulations as well as changes in the law. Their attention to detail is just what we need to keep our business operations running smoothly. They are a pleasure to work with and we highly recommend their services.

- Dan Neal

TPS filled in the gaps within our small HR department

Working with Kim and her talented team helped us fill in the gaps within our small HR department. I strongly recommend TPS for HR tasks that don’t warrant hiring a full-time team. Thanks again Kim!

- Jake F

Knowledge and Expertise

Excellent customer service can be hard to find, but not with TPS Group! I know when I do business with Phil Coco, I can expect a quick response. I rely on his knowledge and expertise, and highly recommend TPS Group for their pension services.

- Mark Catullo

Dependable, experienced, and professional

Dependable, experienced, and professional

Dependable, experienced, and professional, our TPS Group recruiter was an invaluable resource, helping us locate and vet quality talent.

- Tyler R. Vunk

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