The Cash Balance Catch Up

AUTHOR: Blake Willis, COO of JULY Services

I am grateful for the American small business owner, and I admire their grit, tenacity and innovative spirit. Small business owners account for over 50% of American employment and create more than 60% of new jobs . They put their money where their mouth is; more specifically, into their practices, firms and ventures.

But at JULY, we don’t want to just pay lip service to the vital role small business owners play in our economy. We want to equip these cornerstones of the economy with a tangible way to build retirement security. So, how do we help those who often spend decades plugging their profits back into their businesses and writing excessive checks to Uncle Sam at the expense of their 401(k)s? Cash balance plans.

Cash Balance Plan

A cash balance plan is a type of qualified retirement plan that enables business owners and highly compensated employees to maximize tax deductions and accelerate savings. A hybrid plan, it combines the best of both a defined benefit and a defined contribution plan.

JULY’s Regional Sales Directors provide expert field support for retirement plan-focused financial advisors and third party administrators. They organize and host educational events, coordinate plan design illustrations, prepare and present proposals, and are speakers on topics relevant to industry professionals. Geringer will be responsible for working with advisors and other JULY relationship partners in the West Central Region and will be based in Denver, Colorado. See JULY’s national sales map for more details.

Essentially, it’s a way to save more, faster.

Best Candidates

Healthcare industry professionals, lawyers, dentists and CPAs who own their own practice, or other types of businesses that have steady cashflows and high profits and are already maxing out their 401(k)s are likely to benefit from a cash balance plan.



  Maximize Tax Deductions

  Accelerate Savings

  Provides Measure of Certainty

  Flexible Plan Design

  Easy to Understand

  Small Employee Benefit

Maximize Tax Deductions

Cash balance plans are one of the last, best tax deductions available to the American small business owner. Even the most aggressive small business 401(k) plan cannot replicate the financial benefit these plans offer.

How? Cash balance plans are uniquely structured to allow the business owner(s) to receive an outsized percentage of funds contributed to the plan compared to their employees. Paying a few thousand dollars to employees and an administrative fee that begins at four to five thousand dollars is quickly recovered by the gargantuan-in-comparison tax deduction the business owner receives.

Accelerate Savings

It’s not too late to save big. And quickly. Cash balance plans dramatically accelerate retirement savings. Yearly 401(k) contributions are capped at $57,000 for those under fifty and at $63,500 for those fifty and over. This level of savings is often not enough for high earners to maintain their lifestyle in retirement.

When high earners combine their cash balance plan with a traditional 401(k)/profit sharing plan – which almost all cash balance sponsors do – they can set aside $100K+ more per year.

Cash balance plans also offer an effective diversification method for owners who have too much money tied up in their firms or would like to hedge against some higher-return, riskier investments.

Provides Measure of Certainty

Cash balance plan contributions are typically invested in a conservative manner, but participants receive a set rate of return (normally 3-5%, which is defined in the plan document) regardless of the actual performance of the funds. Remember, since a cash balance is, in part, a defined benefit plan, the amount the owner will receive is defined no matter the gains or losses the investments yield.

A cash balance plan is not focused on huge gains from the market, which may make this seem like a less-than-flashy investment. And it is. But a cash balance plan not being subject to the whims of a highly volatile market is freshly compelling in the light of COVID-19.

Just this past March, the Dow dropped more than 35%, and the CBOE Volatility Index “VIX”, commonly known as the “fear index,” reached an all-time high. While the market has since recovered most of the ground it lost, the near and medium-term outlook remains highly uncertain, per Fed Chair Jerome Powell . Cash balance plans offer a refuge from market turbulence in the form of set, predictable returns for participants.

Flexibility in Plan Design

Cash balance plans offer a high degree of flexibility in plan construction.

A Tale of Two Partners – Consider an ENT practice with two partners. Think about these highly compensated professionals’ educational and career trajectories. The first partner just turned 35. The second partner is 55.

Both partners completed extensive schooling (often 8 or even 12 years of postsecondary education), studying hard in undergrad, medical school and in residency. Both partners worked to establish their practice. They assembled a great team, built their book and established a solid infrastructure. But that’s where their paths diverge.

The 35-year-old is still paying off student loans (often $100K+ for specialty doctors), is building a new home for her expanding family and saving intensely for her children’s education through a 529 plan. She is likely not interested in a cash balance plan.

The 55-year-old has raised a few kids, put them through college and paid off his daughter’s recent wedding. He is comfortable in his career, has no debt and few expenses and is rapidly approaching retirement age. He is a prime candidate for a cash balance plan.

A cash balance plan can help the 55-year-old understand his financial goals and create a plan to rapidly meet them. We can adjust the plan to exclude the younger partner, or bring them in at a much lower, but equally beneficial contribution level.

Easy to Understand

Like a 401(k), cash balance plan statements are easy to understand. Contribution and interest credits are clearly delineated in an easy-to-read, lump-sum format. Participants know exactly where their money is, how it’s being invested and what their account balance is.

Simply put, clarity + transparency = happy participants.

Employee Benefit

While cash balance plans require some pay-in to employees’ accounts, it is a small tradeoff when you take into consideration the enormous tax break employers reap because of it.

But even this small contribution can increase employee morale, help retention rates and attract new talent.

The Cash Balance Impact

I’ve become a champion for cash balance plans, because I see firsthand the outsized impact they have on individuals’ ability to save quickly and smartly for retirement.

The combined benefit of shielding a quarter million dollars from a 37% tax rate while earning a respectable three to five percent return on that investment makes a compelling argument.

As with any retirement plan, there are drawbacks. Some factors for small business owners and financial advisors to take into consideration before proceeding with a cash balance plan are: the IRS’ permanency requirement (plans are not to be altered often), an excise tax can be levied against the owner for failing to make yearly contributions and census data can affect the level of employer benefit.

Partner with JULY

Cash balance plans are the fast-growing segment of retirement plans. Financial advisors have an opportunity to partner with JULY to seize upon this trend.

Our advisor-centric approach provides support to educate advisors on cash balance plans, craft a proposal and design a plan for their clients.

For more on how cash balance plans work and the advantages they offer:

Blake Willis is a highly recognized thought leader and event speaker within the retirement and financial services industry, and a domain expert in cash balance plans.


About the Author

Blake Willis is a highly recognized thought leader and event speaker within the retirement and financial services industry, and a domain expert in cash balance plans. He is one of the nation’s leading authorities on all aspects of retirement plan governance, plan design and 3(16) plan administrator roles, but also practical aspects of retirement plans such as product development and distribution strategies.



2 Some plans may elect to credit the actual rate of return.


4 Assuming the highest tax bracket.


About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors, and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate, and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website


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