Cash Balance Plans

 

Cash balance plans can dramatically increase tax-deferred retirement savings for owners, partners and other key employees. They are a special type of defined benefit plan that allows for significantly greater deferral opportunities than under a 401(k) profit sharing plan alone. Cash balance plans also have some of key features similar to those found in defined contribution plans.

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• Design Flexibility – Works in concert with the company’s 401(k) plan and provides flexible design options.

• Individual Participant Accounts – Participants receive “contribution” and “interest” credits. This is much easier for participants to understand than benefits provided for under a traditional defined benefit plan.

• Portability of Benefits – Participants can receive a lump-sum distribution upon termination and roll over their balance to an IRA or employer-sponsored qualified plan.

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In order to maximize contributions for the targeted individuals, employers typically have to contribute between 5% and 7.5% for employees (includes contributions made under the 401(k) and cash balance plan). However, maximum contributions for owners, partners and other key employees will vary by employer based on a number of factors including the ages of participants, demographics of the workforce, and level of employer contributions provided for non-highly compensated employees.