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A Cash Balance Plan can relieve the frustration of the contribution limits that are present in 401(k) profit sharing plans without many of the funding risks of traditional Defined Benefit plans. Cash Balance plans provide some of the highest tax deductible contributions of any qualified retirement plan. See the sample illustrations for more details.

A Cash Balance Plan allows benefits to be concentrated to owners, long-service employees, and favored employee groups. This allocation flexibility is especially attractive when a Cash Balance plan is added to a 401(k)/Profit Sharing Plan.

A properly designed Cash Balance Plan allows sponsors some flexibility of accelerated funding in strong cash flow years and limiting contributions in slower years. Because a higher percent of the contributions go to owners and favored employees, it is also easier for owners to cutback on their own funding in slow business climates than for other employees.

Cash Balance Plans are not participant directed so the investment design and structure can be professionally managed. Since the account is employer funded and there is no direct correlation of the performance of the assets and the account value of the participants, it is important that the funds can be managed and linked to the liabilities of the plan.

Unlike more traditional defined benefit plans that are often confusing to employees, Cash Balance Plans are easily understood. Account balances can be included as a value on quarterly retirement benefit reports so employees see the actual value of the benefit along with their 401(k) value. This saves employers time and quantifies the benefit of the contribution to the employee in easy to understand terms.

Cash Balance plans are relatively simple to administer because the contributions are calculated based on current income and an easily definable interest credit. This means funding liabilities are readily identifiable and, if properly designed, offer annual funding flexibility.

While Cash Balance plans have been around for several years, many employers were reluctant to establish these plans because of legal discrimination challenges that have occurred over the years. These concerns have diminished with the Pension Protection Act of 2006 (PPA). The PPA prospectively validated the Cash Balance plan and the IRS has announced they will resume issuing determination letters for this plan design. This means those companies establishing new Cash Balance Plans (post 2006) will not have to contend with discrimination issues that were unclear prior to PPA and can enjoy enhanced tax deductible contributions.