Cash Balance Plans
Great for those that are already maximizing their 401(k) plan contributions and still want to save more.
LARGER TAX DEDUCTIONS
The higher the contributions, the higher the tax deduction.
No contribution or investment decisions for employees.
GREATER BENEFIT PAYOUT
Higher contributions lead to higher payouts at retirement.
Maximum Tax-Deferred Growth
Today
Thousand
Pre-Tax Cash Balance Contributions
Per Person
After 15 Years
Million
Accumulated Retirement Savings
Assumes 6% annual rate of return before inflation & $0 starting balance. Hypothetical illustration only. Actual results may differ.
Accelerate your savings.
Cash balance plans are the modern evolution of traditional defined benefit plans. But unlike defined benefit plans, cash balance plans promise a certain account balance in the future instead of a monthly benefit payout. Each eligible employee’s account is credited based on pay and an indexed interest rate, which helps reduce risk for the business by eliminating the impact of investment fluctuations.
Contributions are employer-funded and are held in a pooled trust account, which keeps it simple for employees because they don’t have to decide how much to save or how to invest.
And just like a traditional defined benefit plan, cash balance plan contributions are also protected by the Pension Benefit Guaranty Corporation (PBGC). So employees can rest assured that their benefits are protected.
Cash Balance Plan Example
How Cash Balance Plans Work
| Age | Salary | 401(k) Deferral | Profit Sharing | Cash Balance | Total | |
|---|---|---|---|---|---|---|
| Owner 1 | 55 | $285,000 | $26,000 | $37,500 | $247,950 | $311,450 |
| Owner 2 | 50 | $285,000 | $26,000 | $37,500 | $210,900 | $274,400 |
| Employee 1 | 45 | $50,000 | $5,000 | $2,500 | $700 | $8,200 |
| Employee 2 | 40 | $45,000 | $3,000 | $3,700 | $700 | $7,400 |
| Employee 3 | 35 | $40,000 | $1,500 | $3,330 | $700 | $5,530 |
| Employee 4 | 30 | $35,000 | $500 | $3,590 | $700 | $4,790 |
| Employee 5 | 25 | $30,000 | $0 | $2,220 | $700 | $2,920 |
| % to Owner | 83.5% | 99.2% |
Hypothetical illustration only. Actual results may differ.
IS A CASH BALANCE PLAN RIGHT FOR YOUR COMPANY?
Cash balance plans are ideal in a number of situations, but they’re most effective in smaller companies with a large age disparity between owners and the rest of the staff. Here are some other things your business will need to make a great fit…
LARGE CONTRIBUTIONS
You’re seeking contributions over the 401(k) and profit sharing limits.
STEADY CASH FLOW
Your business has steady cash flow and is able to meet funding requirements.
IDEAL DEMOGRAPHICS
Your company’s owners are older than your company’s staff.
SEEKING DEDUCTIONS
You’re looking for large tax deductions that preserve assets.