Fidelity Cash Balance Plans: The #1 Question to Ask


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Look I understand. Fidelity is one of the first names that comes to mind when considering a financial product. Maybe it’s their discount brokerage service, investment products, consulting services, or group insurance. But how much do you know about Fidelity cash balance plans?

If you are looking for a cash balance plan provider, Fidelity is worth a look. We’re going to focus on Fidelity’s cash balance plans in this post, among other defined benefit products, and identify how these products suit your business.

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As an employer, it is critical to understand that cash balance plans represent a specific niche under the defined benefit plan segment. You may encounter people with limited awareness about these plans, even when speaking with large custodians. But let’s talk about that in a bit.

Fidelity Cash Balance Plan

Fidelity offers comprehensive cash balance plan solutions, comprising administration, actuarial services, investment management, and even a consulting service for plan participants.

It is one of the favorite custodians for cash balance plans among our clients. Fidelity’s wide array of services, along with reasonable pricing, makes them a suitable choice. Additionally, Fidelity is quite popular among business owners for retirement solutions, such as independent 401k or similar qualified retirement plans. So it makes a lot more sense to stick with a single provider for extended services.

A look into Pension Trusts

A common misconception among people choosing Fidelity as a custodian is that they have to open their cash balance plan with the firm itself. However, that isn’t accurate. Opening a cash balance plan with a third-party provider, like Emparion, provides both trust agreement and tax ID or EIN that are required for opening a “pension trust.”

You can choose any custodian for your pension trust, although it is important to note that smaller banks have a complex process for opening these trusts. Large brokerages, on the contrary, make the entire process simpler.

Scrabble pieces spelling TAX

Fidelity is an excellent choice for opening your pension trust. Now, we do understand that you might consider opening a cash balance plan with them, but do understand that most custodians, including Fidelity, do not have comprehensive retirement solutions for small businesses.

It will not be a surprise if a regular Fidelity customer support representative isn’t completely aware of cash balance plans. Their general queries include designing, setting up IRAs or independent 401ks.

On the contrary, if you operate a business with over 100 employees, you can contact Fidelity’s institutional arm for specialized services.

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For small business owners, finding the right cash balance plan with large custodians could be a challenge. The primary intent of most custodians is to grow their assets under management (AUM), allowing them to earn management fees. They prefer third-party administrators facilitating the design and installation of these plans.

What are the pros and cons of working with Fidelity

Let’s start by stating the most crucial point first. You don’t need to set up a cash balance plan with Fidelity just because you want them as your custodian. You can choose a third-party administrator (like us) to set up your customized cash balance plan, and then appoint Fidelity as your custodian.

One of the primary issues when dealing directly with custodians for your cash balance plan is flexibility. Most custodians have one-size-fits-all retirement solutions, offering limited control to plan owners. Additionally, custodians do not offer self-direction ability in their plans, limiting your investment choices.

We’re not trying to paint a bad image here, and their solutions may work perfectly fine if you like the available investment options. However, there is little certainty or control when it comes to a change in management fees or closure of certain features with these custodians.

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Set up for 2021 or 2022

Working with a third-party-administrator offers the necessary flexibility, especially when it comes to investment options. We offer complete self-direction and investment in alternative assets to our clients.

Our Cash Balance Plans

Flexibility is the cornerstone of our cash balance plans. You can easily transfer these accounts across different custodians, including Fidelity, or financial advisors.

We intend to simplify retirement solutions for our clients by creating a comprehensive customer experience. We start by collecting some key pieces of information, such as your age, business revenue, employee census, along with other details.

Based on this information, our team creates a custom illustration of the plan, providing you an idea of the contribution amount, and critical milestones.

Our support services for new clients include:

  • Designing a free custom plan for your business;
  • Establish your plan documents;
  • Complete a illustration review by an actuary; and
  • Coordinate the set-up with your tax professional and financial advisor (even with Fidelity).

See. We’re completely aware of the doubts, questions, and uncertainties you may have in your mind concerning cash balance plans. There are chances that you might have tried speaking with a CPA or financial advisor about these plans with little respite and results, as these plans do not fall under the standard retirement products.

mega rules

Our role doesn’t involve managing your money, so we have no conflict of interest with you whatsoever. We’ll never force you to choose a particular advisor or custodian for your plan. In fact, we’ll help you put down the paperwork and open an account with a custodian of your choice.

A key feature of our plans is the ability to invest in alternative assets, such as real estate, mortgage notes, private equity, precious metals, hedge funds, commodities, and similar asset classes. Additionally, we support all the conventional investment products available through Fidelity, including stocks, bonds, mutual funds, and CDs in your plan.

Diversification is a critical aspect of retirement planning and we help you achieve true diversification through our plans. If you’re not interested in alternative investments, you can stick with standard financial instruments.

How to set up a cash balance plan with Fidelity as your custodian

Choose a third-party administrator that suits your requirements. Ideally, your TPA should provide a clear picture of the plan, your annual contributions, investment options, and the cost of administration.

Install a custom plan that is compatible with Fidelity. After finding the administrator for your plan, make sure that the plan works seamlessly with Fidelity’s platform.

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Open an investment account with Fidelity. You have to make your investment allocation after opening the account with Fidelity. Ideally, you should try to match plan investments with the crediting rate of your cash balance plan.

Time to fund the plan. Now that your account is set, it is time to fund the plan. You don’t have to make the annual contributions right away, and even partial funding would suffice. It is critical to understand that the IRS allows you to make the annual contribution up to the tax filing date, including any extensions, so there is no rush.

Communicate with your accountant. Don’t forget to communicate your plan with your CPA. These plans can be complicated and many tax professionals don’t understand how they work.

AdvantagesDisadvantages
Tax Deferred InvestmentsComplex Combination Rules
Large Contributions (Especially Over 50)Permanent IRS Plan Requirement
Annual Contribution RangeHigh Plan Costs
Flexible & Stable FundingNot Great with Many Participants

Final Thoughts About Fidelity Cash Balance Plans

Fidelity is a reliable service provider, and there’s no doubt about the quality of its service or customer support. 

The only catch is whether they can offer custom, specialized services for your business. Does the plan fit in your overall financial strategy?

Taxes written on hanging tags

It’s a significant decision for your business, personal finances, and the financial health of your employees, so do your due diligence. At Emparion, we can design and help you set up the plan within 3-5 business days. Our team will offer exclusive support in setting up your Fidelity account (takes a week).

Cash balance plans are an ideal choice for high-income business owners, and by choosing to open one, you’re already on the right track.

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Paul Sundin

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4 thoughts on “Fidelity Cash Balance Plans: The #1 Question to Ask”

  1. Do you set up the cash balance plan through Fidelity or do I have to go directly to them? I use them for all my brokerage accounts, so it would be easier for me to keep all my accounts at the same place?

    Reply
    • Hi Drew – We can set up the plan and then the paperwork can be forwarded over to Fidelity so they can set up the brokerage account. That way you can have all your investments in one place. When we set up the plan we can customize it based on your situation. In addition, you can use our plans with other custodians in case you decide to switch from Fidelity at some point in the future. We have a rep at Fidelity so the process is very streamlined. Just let us know if we can help.

      Reply
  2. 1. We have a 2 partner LLC and were wondering if we set up a CBP, can one partner have say Fidelity and another Vanguard as a custodian under one TPA (such as Emparion)?
    2. Also are in-service withdrawals allowed from a cash balance plan (ie if one partner who is >62 years of age wants to sweep his portion of CBP investment each year into an IRA for any reason, is this permissible)?
    Thanks

    Reply
    • Hi Deepa – you can have the funds distributed between two custodians. But the assets are treated as “pooled” and the accounts cannot be specifically allocated to each employee. It sounds like you are each looking to control you own account so this may not work well for you. The best approach is for you both to come up with an investment mix that you both can agree on. Regarding the in-service distributions, a cash balance plan does allow pension plans to make in-service distributions available as early as age 62. The amount has to be vested and there are certain other conditions. Feel free to reach out to me for a free consultation if you like.

      Reply

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