401(k) education

A cash balance plan is a qualified (tax-favored) retirement plan that combines the high contribution amounts of a defined benefit plan with the look, feel and portability of a defined contribution plan. For that reason, it’s called a “hybrid” plan. Cash balance plans resemble 401(k) plans in terms of offering individual, portable retirement accounts. But they allow significantly higher contribution levels and use different investment principles. A cash balance plan communicates the promised benefit to employees as an account balance rather than an annual amount payable for life.

You may want to consider a cash balance plan if…

• You currently sponsor a 401(k) for your company and would like to defer more than $58,000, or $64,500 annually if 50 years of age or older.
• You want to rapidly accelerate retirement savings with annual pre-tax contributions from $100,000 to $200,000 or more, depending on age.
• The owners and executives are, on average, older than the non-highly compensated employees.
• Your 401(k) plan is safe harbor. Companies already making a 3% or higher contribution to staff within an existing retirement plan typically see a great benefit from cash balance.
• You own a family business. A cash balance plan can be used as a component of succession planning.
• The principals or sole proprietors earn more than $150,000 annually.
• Several owners want to benefit from a greatly enhanced retirement plan.
• You need to squeeze 20 years of savings into 10.
• You would like protection from creditors. ERISA protects cash balance plan assets (and assets of all qualified retirement plans) from creditors in the event of bankruptcy or lawsuit.
• You want to attract and retain high-caliber talent.

How much can be contributed in a cash balance plan?

Employer contributions are determined by an actuary and specified in the plan document. It can be a percentage of pay or a flat dollar amount.

What are the advantages of a cash balance plan?

Employer contributions are determined by an actuary and specified in the plan document. It can be a percentage of pay or a flat dollar amount.

1. Reduces taxes. Funds are tax deductible and earnings grow tax-deferred until withdrawn. This benefit is enormous and can have a dramatic impact on savings accumulation.

2. Accelerates retirement savings. Squeeze 20 years of retirement savings into 10.

3. Attracts and retains top talent. Money that would otherwise have gone to the IRS now enriches both the employer and employee retirement savings, helping attract, reward and retain talented tenure employees.

4. Shelter from creditors. In volatile economic times, preserving profits from both taxes and creditors is increasingly important.

5. Protect retirement savings from market volatility. Cash balance plans grow primarily through high contribution amounts earning interest rates that stay ahead of inflation without taking on major risk.

If you’re interested in learning more about how a cash balance plan can help your business – pick a time to speak with us at the link below.

401k/Profit Sharing Plan— A 401(k) plan is a tax-advantaged, defined-contribution retirement account offered & sponsored by most employers to their employees. Workers can make contributions to their 401(k) accounts through an automatic payroll withholding.  Matching is optional, but often offered & the investment earnings are not taxed until the employee withdraws that money, typically in or after retirement.

Cash Balance Plan — A cash balance plan is a qualified (tax-favored) retirement plan that combines the high contribution amounts of a defined benefit plan with the look, feel and portability of a defined contribution plan. For that reason, it’s called a “hybrid” plan.

Cash balance plans resemble 401(k) plans in terms of offering individual, portable retirement accounts. But they allow significantly higher contribution levels and use different investment principles.

A cash balance plan communicates the promised benefit to employees as an account balance rather than an annual amount payable for life.

Despite all the work that goes into setting up a 401(k) plan, what many trustees don’t know is just how little it takes to lose your plan’s tax-qualified status. Think about your 401(k) plan management process for a minute. If you’re like most employers, every pay period you generate information or a report with deductions, loans, demographic updates, and ultimately “push the button” to transfer the necessary data and funds to your retirement plan vendor. This ultimately begs the question: What’s your back-up plan if your plan administrator happens to be unavailable on the day when your 401(k) contribution files are due? Who’s knowledgeable and qualified enough to fill in during that time? And if someone else cannot handle the process, what is the impact of not getting these updates to your 401(k) provider on time? We have created a 401(k) Violations Whitepaper to help you answer these questions and avoid costly 401(k) violations.

Offering a retirement plan can be one of the most challenging, yet rewarding, decisions an employer can make. The employees participating in the plan, their beneficiaries, and the employer benefit when a retirement plan is in place. Administering a plan and managing its assets, however, require certain actions and involve specific responsibilities. We have compiled a fiduciary checklist to help you make sure you are meeting your fiduciary responsibilities, and if not, we can help.

Why choose BetterK over other plans? Because we tackle each area of retirement plan optimization (and do so with lower fees than many of our competitors). If you’d like to read more about how BetterK by Rebalance can help your small business, check out this complimentary brochure that provides all the details on why BetterK is the right choice for your business.