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June 4th, 2019

When the IRS released regulations in 2014 that clarified the rules governing cash balance plans, they opened the way for a lot of exciting new possibilities.

Previously, cash balance plans had to use a fixed interest rate to measure the growth of a participant’s account. These 2014 regulations, however, allow for interest crediting rates that depend on how well the plan’s investments are doing. The amount that each participant receives can shrink or grow depending on the performance of the investments, which allows for significantly more flexibility.

The 2014 rules also sanction the use of a variety of investment strategies within a single plan. This means that a business owner can divide his or her employees into subsets with different levels of investment risk for each one. For example, the owner of a consulting firm may wish to place a portion of the plan’s assets in conservative investments on behalf of the firm’s senior partners, while making more aggressive investments on behalf of junior partners. This provides for excellent flexibility when compared to the old rules, which required that all investments remain in a single pool without subsets. 

The end result of these 2014 regulations was to make cash balance plans a better and more popular option than ever. In 2015, cash balance plans made up 28% of all defined benefits plans, which is up from only 2.9% in 2001 (Kravitz 2015 National Cash Balance Research Report).

Many small and mid-size companies, particularly those that employ high-earners, are adding cash balance plans to supplement 401(k)s. I myself see no reason not to explore the opportunities that a cash balance plan can offer.

Cash Balance Advisors is a national company with many locations to assist business owners in building a custom cash balance plan for retirement. We are affiliated with an independent group of highly advanced planning professionals. With the use of a cash balance plan, our group of advisors collaboratively develop forward-thinking strategies and work closely with CPAs to help business owners like you with additional top-line deductions for a secure lifestyle that will last well beyond your lifetime.

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