The Joseph Group

Cash Balance Plans

February 18, 2021


Well, we’re here. It’s 2021 and we are starting to see the light at the end of the COVID tunnel. As vaccines are ramping up there is a general sense of “the end is now in sight” for much of our country’s most at risk population. I hope you are feeling as optimistic as I am.

A question we’re often asked is how business owners can max out their (and their team’s) retirement savings above and beyond what the 401(k) plan limits allow. Having additional pre-tax dollars going into a qualified plan (like a 401(k)) also provides for an additional tax deduction for businesses as well. In some cases, the solution may be a Cash Balance plan. Cash Balance plans have been around since 1985, and while they have been used previously, have seen momentum swing in their favor in recent years due to the flexibility in design options, as well as the increased savings opportunities.

So, what is a Cash Balance plan? Simply put, a Cash Balance plan is a type of pension plan that provides a set percentage of employees’ annual compensation, plus interest, as a retirement benefit. While this is a type of qualified retirement plan, a Cash Balance plan differs from a 401(k) in that it has higher contribution limits, as well as it only allows for employer contributions to the plan. This can be a great addition to your retirement benefit package but it’s important to know that Cash Balance plans work best when a solid 401(k) plan is already in place.

While extra retirement savings and tax deductions may sound great to many business owners, Cash Balance plans do have some limitations. Below are a few key points to consider when deciding if this is the right fit for you and your team.

  • Age of your team. Typically, Cash Balance plans work best when you have a relatively young work force, especially when contrasted against the ownership of the company.
  • Wages. In the same way age can impact the effectiveness of a cash balance plan, so do the annual wages of your team.
  • Investments. Since there is a defined interest rate (generally 3-5%), participants would not have control over their individual account investments. Plan monies are pooled and an investment advisor would take the reigns of the investment decisions, with input from the retirement plan committee or trustee. The Joseph Group has an established portfolio designed to accommodate these plans and we’d be happy to discuss how that works with you.
  • Fees. Cash Balance plans are more expensive than 401(k) plans due to the additional administration required to ensure the plan is adequately funded each year. However, in most cases, the benefits will outweigh the costs.

When appropriately used and managed, these plans can add a lot of value to the lives of your team with additional employer dollars towards retirement. Our Retirement Plan Service Team at The Joseph Group is here to help!

  • We have the necessary experience working with this type of plan to both help you navigate some of the complexities in determining whether or not this type of plan is a fit, as well as providing ongoing service both to you and your employees.
  • We can connect you with trusted partners and specialists that have the knowledge, experience and track record of providing quality information and service to plan sponsors.
  • Using our objective based portfolios, managed by our Investment Team, Cash Balance plans can meet the needs of your team and the complexities in the rules that govern this type of retirement plan.

While many consider Cash Balance plans to be an excellent solution for additional retirement savings, they are certainly not the right fit for every team. If this sounds like an opportunity you would like to explore further, if you have any questions regarding what type of retirement plan best fits your company’s needs, or even if you just want a second opinion regarding your current retirement plan, please reach out to us. We love the opportunity to help!





Written by Matt Kruckenberg, Manager of Retirement Plan Services. Matt can be reached at 614-907-8639 or matt.kruckenberg@josephgroup.com