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Cash Balance Plans

December 07, 2023

A cash balance plan is a unique retirement savings option that combines features of traditional pension plans and 401(k) plans. There are significant benefits of cash balance plans for both employees and employers.

In a cash balance plan, the employer contributes a set percentage of an employee's pay each year, and the employee's retirement benefit is determined by the amount of contributions and the interest credited to their account over time.

Now let’s review the benefits of Cash Balance Plans to Employees:

Benefit 1: Employer Funded

Firstly, Unlike 401(k) plans, cash balance plans are ONLY funded by the employer. This usually represents an additional source of retirement funds.

Benefit 2: Portability

Secondly, cash balance plans are portable. If an employee leaves their employer before retirement, they can take their vested account balances with them, preserving the retirement benefits they have accrued.

Now for the benefits of Cash Balance Plans to Employers:

Benefit 3: Attract and Retain Talent

Firstly, cash balance plans can help employers attract and retain top talent by providing a valuable retirement benefit. Offering a cash balance plan demonstrates that the company values its employees and invests in their future.

Benefit 4: Cost Savings

Secondly, cash balance plans can lead to cost savings for employers. As a type of defined benefit plan, they may reduce taxable income and may help in offsetting the constant pressure to increase individual compensation. A cash balance is considered part of an employee's “total Comp package”, but under the non-cash portion.

Benefit 5: Plan Design Flexibility

Lastly, cash balance plans offer plan design flexibility, allowing employers to tailor the features to better suit their business needs and workforce demographics.

One disadvantage of a Cash balance plan is the lack of control or chooses of investment from the employees. The employer makes all investment decisions.

Whether you are an employee or an employer, a cash balance plan offers significant benefits. Securing your financial future and protecting your loved ones' interests starts with proper planning. To explore how a cash balance plan can benefit you or your organization, please use the link below to schedule a meeting today!

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Note: Investment strategies and specific investments mentioned may not be suitable for everyone. Individual decisions should be made after careful consideration of one's financial objectives, situation, and needs. This information is not intended as a personalized recommendation. Seeking advice from a personal investment advisor is recommended.

Please note that representatives do not offer tax or legal advice. Discussions related to taxes are purely informational, not exhaustive, and should not be interpreted as legal, tax, or accounting advice. It is advisable for clients to consult with qualified legal, tax, and accounting advisors as needed.

Securities and investment advisory services are provided through registered representatives of MML Investors Services, LLC, a member of SIPC.