• cash balance plan is a type of defined benefit plan (hybrid plan) that features characteristics of a defined contribution plan
    Individual account balances
    Portable accounts: Roll over into IRA upon leaving
    ERISA rules apply
  • cash balance plan allows for much larger pre-tax contributions than defined contribution plans
  • cash balance plan is especially attractive for closely-held firms or businesses
    Plan designed to meet partners/shareholders objectives.
    Best for individuals with high capacity for tax deferred saving.
  • Safe-harbored by the Pension Protection Act of 2006
    Provided resolution to potential earlier legislative concerns.
    Set “rules of the road”
  • Mainly Law Firms, Medical and Dental practices, and family owned businesses. To a lesser extent, hedge funds, private equity firms, and accounting practices.
  • Very practical when both older and younger owner/partners as a way of ‘funds’ the older generation’s retirement needs.
  • Must have a relatively consistent cash flow and an appetite to save more than $60,000 annually per owner/partner in a tax-deferred environment
  • Significantly more tax deferral than just 401(k)/profit-sharing Plans
  • Creditor Protection
  • Succession Planning
    Forces the partners to save by the time they are of retirement age and they have the financial security to retire and pass down their clients to the younger generation.

Cash Balance Maximum Contribution Limits

Age401(k) only401(k) with
Profit Sharing
Cash BalanceTOTAL

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Cash Balance Case Studies

Sample Cash Balance Plan

NameAgeAnnual Salary401(k)Profit SharingCash BalanceTotal ContributionTax Savings
Owner61$270,000$24,000$36,000$0 to $254,000$314,000$141,300
Spouse56$65,000$24,000$9,750$0 to $57000$90,750$40,838
4 Staff
Veronica Rowe41$51,000$3,825$700$4,525
Patty Flores35$41,000$3,075$700$3,775
Marc Fitzgerald28$34,000$2,550$700$3,250
Sheldon Sparks44$21,000$1,575$700$2,275
Subtotals $147,000 $11,025$2,800$13,825$6,221
Grand Totals $482,000$48,000$56,775$313,800$418,575$188,359
Percent of Contribution to Owners: 96.7%