Cash Balance Boom Continues- Kravitz
Continuing almost a decade of double-digit annual growth, the cash balance plan market was up 19% in 2014, the most recent year for which complete DOL data is available. The report, published by Kravitz, Inc., draws a contrast with 401(k)s as only rising 2%, though that’s just math applied across a significantly larger number of plans. Source: Napa-net.org
Key 2016 Kravitz Report Findings:
“Between 2008 and 2014, Kravitz says there was a 189% increase in new plans nationwide. Total cash balance plans now comprise 29% of all defined benefit plans, up from just 2.9% of the total in 2001, according to the report.”
“There are 12.3 million participants in cash balance plans, according to the report.”
“Companies contributed $25 billion to cash balance plans and assets reached $1 trillion for the first time in 2014.”
Why are Cash Balance Plans growing so much?
- Rising taxes have resulted in business owners looking for additional ways to reduce their tax burden through employee retirement plans.
- The flexibility of a 401(k) plan with the high contribution limits of a traditional DB plan, without the various risks and costs involved in traditional DB plans.
- The 2006 Pension Protection Act legalized the use of cash balance plans.
- In 2010 and 2014, the IRS expanded the investment options available to fund cash balance plans.
- The lack of retirement readiness among Baby Boomer generations is leading older business owners to boost savings and maximize qualified plan contributions.
What makes Cash Balance Plans so attractive to small business owners?
- They can provide substantial tax deductions for employee contributions + tax-deferred retirement contributions for themselves.
- Due to cash balance plans being an IRS qualified retirement plan, they are protected in the event of a lawsuit or bankruptcy.
- Owners can potentially double or triple their deferrals when compared with their standard 401(k) deferrals.
- Defined benefit plans in combination with 401(k) plans can act as a substantial differentiator in a firm’s employee recruiting process.