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Cash Balance

A Cash Balance plan is a defined benefit plan that specifies both the contribution to be credited to each participant and the investment earnings to be credited based on those contributions. Each participant has an account that resembles those in a 401(k) or profit sharing plan. Those accounts are maintained by the plan actuary,  who generates annual participant statements.

 Participant accounts grow annually in two ways:

  • The company contribution a percentage of pay or a flat dollar amount is determined by a formula specified in the plan document,  and;
  • An annual interest credit  The rate of return is guaranteed and is independent of the plan’s investment performance. That rate changes each year but usually is equal to the yield on 30-year Treasury bonds,  which has hovered around 5 percent in recent years.

When participants terminate employment,  they are eligible to receive the vested portion of their account balance.

Top 10 Candidates


A Cash Balance plan may be ideal for your company or firm if it falls into any of the following categories:

1. Highly profitable companies of all types and sizes
Usually indicated by the owner’s desire for a larger tax deduction.
Principals earning more than $250,000 per year.

2. Family businesses
The plan can be used as a component of succession planning.

3. Closely-held businesses
Several owners want a greatly enhanced retirement plan.

4. Law firms of all sizes
Tax deferral and asset protection are often very important to this profession.

5. Medical groups of all sizes
Tax deferral and asset protection are often very important to this profession.

6. Professional firms of all types
CPAs, engineers,  architects…

7. Older owners who have delayed saving for retirement
They need to squeeze 20 years of saving into 10.

8. Those who highly value asset protection
ERISA protects all qualified plan assets from creditors in the event of bankruptcy or lawsuit.

9. Those who want an enhanced benefits package for executives
They want to attract and retain high caliber employees.

10. Sole proprietors with income exceeding $250,000 per year
All entity-types apply.



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