What is a Cash Balance Plan?

A Cash Balance plan is an advanced retirement savings plan that allows high income earners to significantly boost their retirement savings and defer current year taxes. It is normally added to an existing 401(k) plan.

Cash Balance plans are a pool of trustee directed funds. Account balances grow each year in two ways: employer contributions and annual interest credits. The plan document specifies the annual interest rate credit, meaning investment performance does not change the amount guaranteed for each participant.

If investments overperform it will not change what is owed to participants, but if investments underperform it will increase the amount to be funded over time. Conservative investment management is therefore important.

Before you commit

• The plan must be set up with the intention of being permanent, generally three to five years
• Changes in plan demographics may impact contribution requirements
• Minimum funding may be required