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Is It Time to Consider a Cash Balance Plan?

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Many small business owners and professionals have delayed saving for retirement for a variety of reasons. The cash balance plan or other hybrid defined benefit plans might be the solution. Depending on the demographics of your firm you could retain more tham 90% of the contributions to the plan. It is a win for your employees because you will contribute more for their retirement. You win because you can pack 20 years of saving into 10 years or less. Increasing your tax deductions while offering a benefit which will help attract and retain top talent.

English: The Frances Perkins Building located ...
English: The Frances Perkins Building located at 200 Constitution Avenue, N.W., in the Capitol Hill neighborhood of Washington, D.C. Built in 1975, the modernist office building serves as headquarters of the United States Department of Labor. (Photo credit: Wikipedia)

For a small but growing number of companies, cash balance plans offer a third alternative. Cash balance plans have existed for many years. However, until relatively recently, regulatory and legal uncertainty kept many companies from adopting these plans. Since cash balance plans have gotten the final stamp of approval from the IRS and the U.S. Department of Labor, their numbers have been increasing.Compared to the hundreds of thousands of 401(k) plans in existence, cash balance plans remain a relative drop in the bucket. According to the 2012 National Cash Balance Research Report published by Kravitz Inc., the number of cash balance plans increased 21% last year. The most recent IRS data from 2010 shows 7,064 active cash balance plans. Just ten years ago in 2001, that number was 1,337. However, the report found that growth of cash balance plans continues to outpace the growth in any other type of retirement plan.

via businessfinancemag.com

Only through an analysis can we determine if the cash balance plan or other hybrid defined benefit plan is right for your firm.

Please comment or call to discuss if this is right for you.

Posted via email from Curated 401k Plan Content

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The 401(k) On Steroids

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When the demographics of a business are right the defined benefit hybrid plan is a great option for many small business owners as well as professional service firms. Assets in a qualified retirement plan provide asset protection from creditors and an accelerated saving rate, up to $250,000 deduction. Many small business owners and professionals are guilty of not saving enough for retirement. This option gives them the opportunity to catch up.

English: Retirement savings for various period...
English: Retirement savings for various periods with squirrel and nut analogy (Photo credit: Wikipedia)

Would an extra $2.5 million come in handy at retirement? Would you like to defer taxes on over $200,000 of current income each year? Would you like to see a higher proportion of your retirement plan expense go to yourself, or your key people if you own a business?Whether you are a realtor, consultant, physician, attorney, independent contractor, sole proprietor, owner or a partner in a small or large business, you can turbo-charge your retirement with a cash balance plan on top of your existing 401(k) plan. You can be a one person shop, or highly paid executive or professional in a large firm.

via forbes.com

While not for everyone, the cash balance plan or other hybrid plans are a great way to accelerate your retirement savings

Please comment or call to discuss how this might be a great solution for you and you company..

Posted via email from Curated 401k Plan Content

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How to determine if a cash balance pension plan is right for your company

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PensionRetirement plan design is vital to the success of very plan. The cash balance plan should be considered by professional service firms, closely held small businesses, and any firm with solid cash flowlooking for additional tax deductions. This plan design will help attract and retain top talent.

Companies that have maxed out their 401(k) plans but still have discretionary incomeand steady cash flow available for retirement benefits may want to consider a cash balance pension plan.“A cash balance pension plan is technically a defined benefit pension plan which has features that resemble a defined contribution plan,” explains Tom Sigmund, firm director and chair of the Employee Benefits & ERISA practice at Kegler, Brown, Hill & Ritter. “Like a traditional defined benefit pension plan, the employer bears all responsibility for funding and investing, and the value of the assets do not impact the promised benefit. However, the benefits are depicted as an account balance.”

Sigmund says that a cash balance pension plan is an especially popular tool for professional practices.

“If they have not maxed out their 401(k) plan, we recommend that they do so prior to establishing the cash balance pension plan. In combination, these two plans can enable the organization to cost effectively meet a variety of goals relative to the principles of the practice.”

via sbnonline.com

The cash balance plan design is best suited for organizations will strong steady cash flow. Not only will be able to deduct significantly more, it will help you attract and retain talented employees.

Please comment or call to discuss how this would help you firm.

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Now is the Time for Retirement Plan Decisions

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These hybrid retirement plans offer the business owner the opportunity to deduct income beyond the defined contribution limits. At the same time you will attract and retain talented employees.

Many successful companies (especially professional firms like medical groups and law firms) are considering whether to increase retirement plandeductions for 2011. This post highlights the action steps to take while there’s still time.Note: We’ll be focusing on cross-tested profit sharing plans and cash balance plans. These plans allow owners to make large tax-deferred retirement contributions in exchange for providing a generous employee retirement allocation (usually 5% of pay if there’s only a profit sharing plan, or 7.5% of pay if there’s a cash balance plan too).

via pensionblog.com

Since the Pension Protection Act of 2006 there are numerous alternatives for deducting beyond the defined contribution limits. This can be a win win for both the employer and their employees.

Please comment or call to discuss how these hybrid plans might work for your company.

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Retirement Rules for Small Business Clients

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WASHINGTON - NOVEMBER 03: Senator Tom Harkin (...
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There is more attention being paid retirement plans by Congress. How to decrease the federal budget has the hill looking for short term and short sighted solutions. This includes retirement plans. Small business owners must review their current company retirement to be certain they are taking full advantage of current tax laws. Alternatives are many and require a thorough analysis of your current situation.

Consider the case of a cardiac surgeon with two partners plus seven employees that Foster handled. The doctors had a profit sharing planfor years. The surgeon and his partners each saved $49,000 per year, and put away the matching percentage for his employees based on their salaries. After a while, the doctors’ wealth accumulation slowed due to slumping markets. Foster helped them change the plan from a traditional 401(k) profit sharing plan to a strategy using “New Comparability Allocations.” One requirement for this plan is this: If owners want to be able to contribute the full $49,000 for themselves, they must contribute a minimum of 5% of salary for each employee.In addition, the surgeon and his partners added another retirement plan, called a “cash balance plan.” This works for small business owners who are over age 45, have sustained profitability and are worried about taxes and accumulating enough to retire. If done properly, the business owner does not have to pay all of the employees additional money in the cash balance plan. After paying the employees 5% on the defined contribution plan, and then adding another 2.5% minimum on the cash balance side, the business owners only have to include 50 employees, or 40% of the employees, whichever is less.

via onwallstreet.com

There are alternatives for all business owners when saving for retirement. Each individual business has it’s own goals and must be custom designed to provide optimum results. Cash balance plans are gaining traction for businesses with steady cash flow.

Please comment or call to discuss how this affects you and your organization.

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Hybrid Pension Plans on the Rebound

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The cash balance plan works very well with companies experiencing steady cash flow. This can be a differentiator when looking to attract and retain talented employees. Given the recent volatility many employees are seeking stability. The cash balance plan can provide this stability.

Hybrid plans have become more popular because they offer employees the security of an old-fashioned DB plan and the portability of a 401(k).”The trend over the past 20-plus years, particularly the last 10 years, was for sponsors to move away from traditional defined-benefit plans because of the volatility of cost and the volatility of the effect on their financial balance sheet,” Young says.

With the significant market declines over the past decade, many employers have switched primarily to 401(k)s. But now that the hybrid regulations have been clarified, employers may give pension plans a second look — in the new, improved form of the < cash-balance plan.

The portability of the hybrid plan is especially popular with a mobile, younger work force.

“Over the past decade, there has been more movement job-to-job and the idea of portability is important. An account plan allows you to move money,” says Glickstein.

“[The hybrid account] is portable,” he says. “[Younger workers] can take it with them. … It’s really appealing to employees that change jobs often. … A lot of traditional plans don’t allow you to take a lump sum

via hreonline.com

The cash balance plan works well when converting a current defined benefit plan. There are other attractive uses for the cash balance plan. Professional services firms, closely held family owned businesses among others can work very well combined with a 401(k)/profit sharing plan.

Please comment or call discuss how the cash balance plan might work in your organization.

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Need to Catch Up on Retirement Savings?

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Retirement savings for various periods with sq...
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The events of the last few years have had a profound
effect on many executives, professional and business owner’s ability to retire
on schedule.  The market volatility may
have decimated their 401k and other retirement accounts.  Along with this problem there continues to be
a threat of increased taxes to pay for the deficits.

Enter the cash balance plan where pre tax contributions
can be as much as $220,000 per year plus your 401k and profit sharing
contributions.  The cash balance
contribution limit is based on the participant’s age.  Each principal participant is able to
determine their own level of contribution.

As a hybrid plan, the cash balance plan design includes
features of defined contribution (401k) and defined benefit (pension
plan).  They are best suited for
companies enjoying stable, high incomes.
The contribution levels must be continued for at least 2 to 3
years.  There is more flexibility than
the traditional defined benefit plan and there should be an analysis performed
to determine feasibility.

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Need additional tax deductions? Attract talent.

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WASHINGTON - NOVEMBER 18: Treasury Secretary ...
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Given the recent market volatility, many business owners, executive and professionals are looking for ways to build up their depleted retirement plan accounts.  The cash balance plan could provide this boost.  This depends on many factors, including income levels and stability.

 

Eighty-two percent of cash balance plans are in place at firms with fewer than 100 employees, the survey found. Many Baby Boomers who own small businesses have assets tied up in the business; now that they are looking toward retirement, their advisers are recommending asset protection and a qualified plan with the highest possible contribution levels, the report states.  “Small businesses are adopting these plans because they provide nice benefits for the employees at the same time create larger tax savings and retirement savings for the business owner,” Kravitz notes.   According to the Profit Sharing Council of America, the average employee gets 2.9% of pay when their employer sponsors a 401(k) profit sharing plan, “but when a small business or employer sponsors a cash balance plan the average contribution is 6% of pay, so these plans provide a much richer benefit for the employees while at the same time creates larger contributions and tax deferred savings for the owners,” Kravitz says.

There is an attractive alternative for employers to attract and retain top talent. Many studies suggest that employees are looking for a pension plan when seeking new employment.  The cash balance plan will be a win win for both the employee and the employer.

Please comment or contact us to discuss how this could impact your company.

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