• In a Cash Balance Plan, each participant has an account that grows annually in two ways:  first, an employer contribution and second, an interest credit which is guaranteed rather than dependent on the plan’s investment performance.
  • It is more expensive to set-up and administer a Cash Balance than a 401(k) Profit Sharing plan because the plan’s funding must be certified by an actuary each year.  However, the tax benefits of the Cash Balance plan will often significantly exceed the additional cost.
  • The employer contribution is determined by a formula specified in the plan document.  It can be a percentage of pay or a flat dollar amount.
  • Plan assets are pooled and invested by the trustee or investment manager not the participant.
  • Cash Balance plans are attractive to Employers where:
    •   Owners desire to contribute more than $45,000 per year to their account.
    •   Companies have demonstrated consistent profit patterns.
    •   Companies are already contributing 3-4% to employees, or at least willing to do so.
    •   Owners are over 40 years of age and desire to “catch-up” or accelerate their retirement savings.