While Cash Balance Plans allow larger contributions than traditional retirement plans, there are some important considerations employers must evaluate before adopting these plans.
Annual contributions are based on owners’ annual compensation or earned income. To ensure maximum funding, these plans require steady earnings to be most effective. Because contributions are required, steady cash flow is needed to ensure the plan can be funded each year.
Contributions to Cash Balance Plans are not discretionary and must be funded annually until the plan is terminated. In some circumstances, the plan can be amended to lower contributions, but strict IRS Regulations apply and may require the plan to remain in place for up to 10 years.
Because Cash Balance Plans are a type of Defined Benefit Plan and fund to a target retirement benefit, annual contributions may fluctuate each year. Contributions can vary because of changes to investment earnings, interest rates, and other actuarial factors.
Below are some resources you may find helpful in evaluating Cash Balance Plans for you or your clients.
|Initial Setup Fee||To set up the plan and prepare plan documents||$2,000|
|Annual Base Fee||Base fee for annual calculations, compliance, and tax filing||$2,000|
|Per Participant||Additional annual fee for each spouse or owner||$250|
|Distributions||Calculation of participant benefits and processing distribution||$300|
It is important to be informed about how Cash Balance Plans work and the impact they will have on your business. Below is a list of frequently asked questions about Cash Balance Plan to help you evaluate them as an option for your business.