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.

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