Cash Balance Plans: What Else You Need To Know

Robin-WeingastWe’re wrapping up our four-part series on Cash Balance Plans. (Miss a part? Click for Part One, Part Two, and Part Three).

In our final post, let’s look at some other key factors to consider when thinking about adopting a Cash Balance Plan:

1) Profit Sharing Plans on their own allow flexibility for contributions to vary from year to year depending on profitability. Cash Balance Plans require amendment in order to accommodate the need for different levels of contributions. There is a restriction on the frequency of amendments unless a valid economic reason exists.

2) If profits are not expected to support its Cash Balance Plan contribution, then the plan can be amended to accommodate either a lower level of contribution or no contribution at all.

3) Any amendment reducing or freezing contributions must be adopted 30 days before employees complete 1,000 hours. Amendments for increases to contributions must be adopted within two-and-a-half months following the end of a plan year.

4) Qualified plans’ assets are protected from creditors in the event of bankruptcy. The anti-alienation provision of ERISA states that “each pension plan shall provide that benefits provided under the plan may not be assigned or alienated,” which means that the assets in a qualified plan are not available to creditors. Since professionals and business owners often consider asset protection a premium, it is very advantageous to accrue retirement savings in an asset-protected vehicle, like a qualified plan. These plans provide a means for business owners and partners to move assets from their businesses to a pension plan. Once in the qualified plan, these assets are then protected from creditors as a “nest egg” for retirement or to pass on to heirs.

As you can see from our series, Cash Balance Defined Benefit Plans can enhance the effectiveness of your retirement program, but only if they are designed thoughtfully and using state-of-the-art technology and processes. They must also include effective communication and education for your employees.

If you are considering a Cash Balance Defined Benefit Plan, The Robin Weingast & Associates team of enrolled actuaries and certified pension and employee benefit consultants are essential partners who can help you develop and get the most out of a Cash Balance Defined Benefit Plan as part of your retirement program. Contact us today for more information.

Is a Cash Balance Plan Right For You?

Robin-Weingast-Cash-balance-plansNow that you know what a Cash Balance Plan is and understand the advantages of these plans, it’s time to explore if you’re a good fit to adopt a Cash Balance Plan.

Good Candidates for Adopting a Cash Balance Plan

1) Professionals who desire to contribute more than $50,000 annually to their retirement accounts.

Many professionals neglect their personal retirement savings while they are building their practice and often have a need to catch up on years of retirement savings. Adding a Cash Balance Plan allows rapidly accelerated savings with pre-tax contributions that can range from $100,000 to $220,000, depending on the demographic mix of eligible participants.

2) Businesses already contributing 3-4% of compensation to employees and willing to contribute more.

While Cash Balance Plans are often established to primarily benefit key members of the practice or other highly compensated employees, the plan normally requires a minimum contribution of between 7% and 9% of compensation pay for staff in the Cash Balance Plan or a separate Profit Sharing 401 (k) plan.

3) Business Practices that have demonstrated consistent profit patterns

Because a Cash Balance Plan is a pension plan with required annual contributions, a consistent cash flow and profit is important to its continuation.

4) Professionals over 50 years of age who desire to “catch up” or accelerate their pension savings

Contributions allowed for partners and required for employees in Cash Balance Plans are dependent on the demographic mix of eligible employees, and work best with the majority of eligible employees being relatively younger than owners. Therefore, older owners generally accelerate their retirement savings faster.

Does it sound like you might be a good fit for a Cash Balance Plan? If so, it’s vital that you have the right guidance. The Robin Weingast & Associates team of enrolled actuaries and certified pension and employee benefit consultants are essential partners who can help you develop and get the most out of a Cash Balance Defined Benefit Plan as part of your retirement program. Contact us today for more information.

Cash Balance Plans: Advantages

Weingast-Cash-Balance-PlanWelcome to Part Two of our special series on Cash Balance Plans. (Click here to catch up on Part One).

Now that you have an understanding of Cash Balance Plans and their tremendous growth, it’s important to understand why and how cash balance plans can be advantageous to your business goals.

Advantages of Cash Balance Defined Benefit Plans

1) The opportunity for larger tax deductible contributions for partners than permitted by 401 (k) Profit Sharing Plans.

2) As an enhancement to an existing pension program, it attracts competent employees and serves to increase retention.

3) Contributions required for Cash Balance Defined Benefit Plans are generally less volatile from year to year and allow lower costs for employees than Traditional Defined Benefit Plans

4) Tiered levels of benefits are attractive to partnerships who desire different levels of contributions fro partners and employees.

5) Many employees seem to understand the account balance concept and appreciate the value of an account balance more than the value of the promise of an annuity payable in the future.

6) Cash Balance Plan assets are portable on termination of employment in that vested balances can be paid as lump-sum distributions, which can be rolled over to an IRA or another qualified retirement plan. When a participant terminates employment, they are eligible to receive the vested portion of their account balance. The vesting schedule required for Cash Balance Plans is also called a 3-year “cliff” vesting schedule, whereby accounts are not vested for the first two years of service, but are fully vested after 3 years of completed service.

As you can see, there are distinct advantages to this kind of benefits plan. In our next part, we’ll explore how to tell if you are a good candidate to adopt a Cash Balance Plan.

If you think a Cash Balance Plan may be right for you, it’s vital that you have the right guidance. The Robin Weingast & Associates team of enrolled actuaries and certified pension and employee benefit consultants are essential partners who can help you develop and get the most out of a Cash Balance Defined Benefit Plan as part of your retirement program. Contact us today for more information.

Cash Balance Plans: What are They?

Welcome to a special series from Robin Weingast & Associates on Cash Balance Plans! If you keep up with our Resource of the Month series, you’ll recall that we recently provided two resources on Defined Benefit Plans: One on Traditional Defined Benefit Plans and one on Fully Insured Defined Benefit Plans.

This month we want to give you an in-depth look at the fastest-growing type of Defined Benefit PlanCash Balance Plans. Since 2001, Cash Balance Plans have soared, with double-digit annual growth each year of the decade and an increase of more than 600% in 12 years:

Robin-Weingast-Cash-Balance

This growth is why we’re presenting a special four-part series on Cash Balance Plans that explains what they are, their advantages, good candidates for adopting a cash balance plan, and other considerations.

Cash Balance Defined Benefit Plans: What Are They?

Professionals of highly profitable businesses are generally looking for larger tax deductions and accelerated retirement savings with minimal costs for employees, so a Cash Balance Plan working in coordination with an already established 401 (k) Profit Sharing Plan may be the perfect solution for your practice. Current tax legislation is encouraging many professionals to adopt this type of plan arrangement as part of their pension programs.

A Cash Balance Plan is a “tax qualified” retirement plan, similar to a 401 (k) Profit Sharing Plan in that it allows for tax deductible contributions and deferral of taxes, as well as creditor protection under the Employee Retirement Income Security Act (ERISA).

While assets of a Cash Balance are invested in a single pooled investment account, each participant has has an account, similar to a 401 (k) Profit Sharing Plan, that is record kept by the plan actuary, who generates annual participant statements, so that employees know what they have accumulated in the plan.

Participants’ account balances in a Cash Balance Plan grow annually in two ways:

1) The employer’s contribution, which is a percentage of compensation or a flat dollar amount based on a formula specified in the plan document, and;

2) An annual interest credit, which is a guaranteed rate of return, independent of the plan’s investment performance. The guaranteed rate varies each year but it is generally equal to the yield on 30-year Treasury bonds, which has hovered close to 5% in recent years.

In our next part, we’ll explore the advantages of these plans.

If you think a Cash Balance Plan may be right for you, it’s vital that you have the right guidance. The Robin Weingast & Associates team of enrolled actuaries and certified pension and employee benefit consultants are essential partners who can help you develop and get the most out of a Cash Balance Defined Benefit Plan as part of your retirement program. Contact us today for more information.

Resource of the Month: Estate Planning Checklist

Robin Weingast Estate PlanningIt seems like 2015 is moving quickly – and we want to make sure you don’t miss the boat on any important planning goals you have for the year. We also want to make sure that estate planning is on your 2015 “to do” list.

Many people assume that if they don’t have a large home or large assets that estate planning is less important for them. While there have been many high-profile cases of estate planning disputes (most recently, Robin Williams’ family), estate planning matters for everyone. Without proper planning, your wishes may not be carried out and your loved ones may find themselves in a drawn-out struggle to determine what will happen to your estate.

That’s why we’ve made our latest Resource of the Month an Estate Planning Checklist that details five steps you can take right now to make sure your estate is in order.

Download Estate Planning Checklist: Five Things To Do Now.

Even if you take these five steps, we always recommend that you consult an estate planning professional to make sure your plans are articulated clearly and in ways that will avoid dispute further down the line. The Robin Weingast & Associates team of experts would be happy to review your plans and make suggestions that match your needs and goals. Contact us today to learn how we can help