A properly designed Cash Balance Plan implemented can be a great retirement savings plan, but it has risks that should be evaluated carefully before implementing.
- Required Contributions – Contributions to a Cash Balance Plan are not discretionary and are required to be funded each year until the plan is terminated.
- Fluctuation in Contributions – Several actuarial factors can cause contribution amounts to fluctuate from year-to-year. If the actual return from the plan’s investment portfolio differs significantly from the plan’s target rate of return, the required contribution can vary significantly from year-to-year. In addition, changes to the company’s employee makeup can cause contributions to fluctuate. A third factor that can cause contributions to fluctuate is an increase or decrease in interest rates. As interest rates decrease, required contributions increase and vice versa.