Cash Balance Plans are one of the most popular plans in the retirement space. Whether you have experience with these plans or are a newbie, we have the tips that will help you structure a plan.
Cash balance plans were considered extinct or on the verge of extinction just a few years ago until the Pension Protection Act of 2006, shading light on what cash balance plan needed to get IRS approval. Business owners must ensure that a cash balance plan is a success and meets the standards required by IRS.
Business owners mainly use cash balance plans to maximize their contributions and retain employees loyal and dedicated to their company. But IRS requires that a plan should meet the non-discriminatory test. A plan should not only benefit a small group of employees. So how can a business owner achieve what he wants while staying within the IRS rules?
Take a look at our answers to your cash balance plan FAQs and then feel free to dig a little deeper below.
New to cash balance plans? Download our Cash Plan Plan Guide
Topics
We’ve divided our cash balance plan information into seven categories. Click on the category below that interests you, or simply scroll down for a full list of our articles and posts.
Table of contents
Plan design and structuring
This article provides ten critical steps an employer can take to ensure the sustainability of a cash balance plan.
| Compliance and governance documentation | Defined responsibilities, benchmarking, administrative practices, and legislative and regulatory changes help quick decision-making in a defined benefit plan management. |
| A plan design that supports defined benefit plan philosophy | Efficient use of investment and encouraging retirement when the milestone is achieved. Constant evaluation should ensure that the defined benefit plan stays relevant over its course. |
| Good administration | The plan sponsor should collect and use quality data necessary to forecast the financial impact and how changes may affect the plan. |
| Enhanced communication | Communication ensures that participants understand and appreciate the value of their defined benefit plan. |
| Periodic review of assumptions | Plans are based on assumptions that should be reviewed periodically to accommodate the plan’s factors. Market conditions, plan experience, and legislative and regulatory changes affect plan effectiveness. |
These articles discuss some of the general concepts of how the plans work. Use them to gain an understanding of plan basics and structuring ideas.
- What is a Cash Balance Plan? The Surprising Truth
- 10 Things To Do If You Can’t Fund Your Defined Benefit Plan
- Solo Cash Balance Plan: A Powerful One Person Strategy!
- What Does a Cash Balance Plan Cost? Pricing & Fees [Infographic]
- Cash Balance Plan TPA: 3 Rules to Hiring the Right Administrator
- 401k Cash Balance Plan Combo: The Little-Known Structure
Tax related issues
The #1 reason that business owners set up these plans is to defer taxes. The posts below will explain to to best structure the plans for tax purposes.
- Cash Balance Plan Tax Deduction for 2021
- How to Deduct Cash Balance Plan Contributions on Your Tax Return
- The #1 Tax Strategy For Active Traders [Step by Step]
- Cash Balance Plan Contribution Limits for 2021 [Table]
Companies best suited for cash balance plans
- Cash Balance Plan for S Corp ≈ The $1 Million Rule
- Defined Benefit Plans for Law Firms: 3 Surprising Examples
- Top 5 Retirement Strategies for High Income Business Owners
- Defined Benefit Plans for Physicians: The $1 Million Plan
- Cash Balance Plan For Self-Employed: 5 Easy Steps to $100k
Strategies
Do employees contribute to a cash balance plan? No, they do not. Cash balance plans do not allow employee deferrals. The company solely makes contributions. The company needs to ensure adequate funds to contribute to all qualifying employees. If employees are looking for an additional way to contribute, they will need to do an employee deferral on a 401k plan.
- Cash Balance Plan IRS Rules: 10 Easy Strategies to $1 Million
- Cash Balance Pension Plan: The #1 Contribution Guide
- 5 Brilliant Cash Balance Plan Strategies for the Sole Proprietor
- Cash Balance Plan Pros and Cons: An Easy 2021 Comparison [Table]
- Cash Balance Plan Minimum Contribution: 5 Surprising Options
Get a FREE IllustratioN!
Just give us a little information and we’ll get you a custom illustration in 24 hours.
Custodians and Investments
- Fidelity Cash Balance Plans: The #1 Question to Ask
- Etrade: How to Set Up Your Defined Benefit Plan Account
- How to set up your defined benefit plan account with Vanguard
- The Quick Step Guide to Setting Up Your Cash Balance Plan Account at Charles Schwab
- The Simple Guide to Setting Up a Cash Balance Plan at Fidelity
- Defined Benefit Plan Providers: Taking a Look at Fidelity, Vanguard and Schwab
- Schwab Defined Benefit Plan: The #1 Question to Ask
- Vanguard Defined Benefit Plan: The Quick Step Guide
Advanced topics
Do you understand the basics? Well then let’s move on to some more advanced topics.
ERISA imposes several disclosure and reporting requirements on cash balance plans. For example, companies must file an annual report, Form 5500, with the IRS and DOL. In addition, employees must be given summary plan descriptions (SPDs), statements of material modifications, and summary annual reports (SARs) at specified times.
Participants must be given information about their benefits upon request, and if the plan wants 404(c) fiduciary protection, participants are entitled to detailed information about the plan and its investments. An ERISA fidelity bond must be obtained, and, in some circumstances, a plan must be audited annually by an independent CPA.
Small employers can’t know these rules. As a result, plan sponsors need help complying with the reporting and disclosure requirements.
- Overfunded Cash Balance Pension Plan? Here’s the Game Plan
- Cash Balance Plan Interest Crediting Rate: Here Are Your Options
- Cash Balance Plan Vesting: The Complete Guide
- Cash Balance Plan Formula: The Simple 5 Step Process
- Self-Directed Cash Balance Plan: Can You Do It?
- The RMD Guide for Defined Benefit Plans & Cash Balance Plans
- Terminating a Defined Benefit Plan: Our 10 Step Process
- Buying Gold & Precious Metals With Your Defined Benefit Plan or Cash Balance Plan
- Can I Invest In Real Estate With My Cash Balance Plan?
- Cash Balance Plan Loans: How to Borrow from a Plan
Videos
If you just want to watch videos, that is fine. Take a look at some of the videos that we have below.
- Cash Balance Plan Pros and Cons: Examining the Advantages & Disadvantages
- Life Insurance In a Cash Balance Plan: Tips and Strategies
- The Best Cash Balance Plan Tax Strategies | A Close Look at the Tax Deductions & Benefits
- 10 Strategies to Maximize Cash Balance Plan Contributions | Solo & One Person Plans
- Cash Balance Plan Contribution Limits: Minimums, Maximums and Lifetime
- Terminating a Cash Balance Pension Plan: What You Need to Know
- Can a Defined Benefit Plan be Combined with a 401(k) Plan? The Surprising DB Plan Combo
- Hiring a Cash Balance Plan TPA: 3 Critical Tips
So there you have it! Our ultimate guide to cash balance plans.
Book a FREE 30 Minute Call!
Schedule a FREE call and we’ll show you how we structure plans for maximum tax efficiency.