Cash Balance Pension Plans
*Large Business Deductions / Secure Retirement Benefit*
The Pension Protection Act of 2006 (PPA) improved the viability, acceptance, and use of Cash Balance Pension
Plans. Although termed by the PPA as Pension Plans, Cash Balance Plans are actually "Hybrid Plans"
with characteristics of defined benefit and defined contributions plans. In addition, among other
stipulations, the PPA provided that an employer can layer a 401(k)/Profit Sharing Plan on top of a Cash Balance
Pension Plan to fully maximize deductions.
Cash Balance Pension Plans*
Defined Benefit Characteristics (like Pension Plans):
- Benefits pre-determined and stated in plan document
- Annual contributions required
- Plan sponsor assumes investment risk
- (PPA and ERISA) Defined benefit limits apply (ie - contributions can be made > $49,000 limit)
Defined Contribution Characteristics (like 401k / SEP Plans):
- Participants have an account balance
- Contributions + interest annually added to the account (guaranteed by the plan)
- Contributions can be segmented by class to favor owners and key employees
Notes and Examples:
- Plan Sponsor guarantees returns (per pension-type benefit as benefits and annual returns
- If returns > expected, company reduces the required future plan contributions
- if returns < expected, company must fund the difference
- Funding limits can be substantially larger than the $49,000 limit on some Defined Contribution
- Business can equalize contributions for the "owner" class of employees (regardless of age)
For examples of Cash Balance Pension Plans please click here.
Please contact us for an appointment
to discuss your specific needs and objectives. For a Retirement
Plan comparison and review all we need is an employee census and your objectives.
Please note, all concepts, strategies, and products mentioned may not be suitable
for you or your company. Employer Retirement Plans require some
Fiduciary actions and oversight by the Employer. Information provided is not intended to be legal or tax
advice. Please consult with your tax and legal advisor for specific