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5 Reasons Advisors Should Learn about Cash Balance Plans   


Investment Advisors looking for strategies to grow their business should consider learning about Cash Balance Plans. Cash Balance Plans are a type of tax qualified retirement plan that allow business owners to make large tax deductible contributions into a tax qualified trust. With the right partner and resources, it is fairly easy for advisors to gain the knowledge needed to begin marketing and serving Cash Balance clients. Below are five reasons advisors should consider making Cash Balance Plans a part of their practice.


Accelerate Clients’ Retirement Savings

Contribution limits to Cash Balance Plans are much higher than 401(k) Plans, and depending on the demographics of a company’s workforce, it is possible for business owners and other highly paid employees to each contribute more than $200,000 per year into the plan. Cash Balance Plans are usually paired with a 401(k) Plan making them even more attractive to the right candidate. Because of the large potential contributions, these plans are a great option for business owners playing catch up and needing to accelerate retirement savings.

Lower Clients’ Income Taxes

Contributions to Cash Balance Plans are tax deductible and because of their high contribution limits, tax savings can be quite large. A $250,000 contribution will result in Federal Income Tax savings of $75,000 or more. With the right demographics and plan design, the tax savings can easily cover the cost of employee contributions and administration fees with some savings left over to fund a portion of the plan. And to top it off, the earnings on plan assets are not taxed until they are withdrawn which often results in years of tax-deferred growth.

High Impact Marketing Strategy

Most advisors already have established relationships with clients who are ideal candidates for a Cash Balance Plan. Any business with strong, steady earnings can be a good fit; examples of typical Cash Balance clients include dentists, doctors, lawyers, and other professional practices with a steady income stream. Once an advisor learns the basics of how these plans work, it is fairly easy to devise a marketing strategy that will yield results. One proven approach includes partnering with a third party administrator or actuary to prepare no-cost, customized plan illustrations for target clients showing them exactly how the plan will work, including the accelerated contributions and tax savings.

Generate New Client Referral Sources

For advisors wanting to expand the scope of marketing efforts outside of their current client base, another good strategy includes working with a knowledgeable third party administrator to host educational seminars for a CPA Firm. Most CPAs are not familiar with Cash Balance Plans, and they have clients who may benefit from the higher tax deductions provided. Some third party administrators offer CPE credits, which is a great way to entice CPAs to attend, and building professional CPA relationships through seminars can lead to ongoing sources of future referrals. Your Regional Sales Consultant at JULY can assist you in presenting Cash Balance education for CPAs.

Increase Growth of Investable Assets

Most Cash Balance plans are targeted to be funded up until a stated retirement age (typically Age 62 or 65), and the overall funding period for the plan generally lasts 10 years or more. During this time period, assets in a Cash Balance Plan for a small employer often grow to as much as $2 million to $5 million. Adding four or five new Cash Balance Plan clients is a great way for an advisor to quickly increase their book of investable assets.

As the list above shows, by building a relationship with a good third party administrator and spending a small amount of time learning the basics of Cash Balance Plans, advisors can harvest existing opportunities within their own book of business, offer value-added services to clients, and create a new stream of business and growth for their practice. For information on how to get started with a Cash Balance Plan today, please contact your JULY Regional Sales Consultant

John M. Humphrey, COO, July Business Services