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Cash Balance Plans Overveiw
- 2. 22 Initial Contribution Limits $0 $50,000 $100,000 $150,000 $200,000 $250,000 40 45 50 55 60 Age Combination Cash Balance 401(k) Source: Guardian, December 2009.
- 3. 33 Simplicity Participant Age 50, NRA 62, Salary $50,000 Defined Benefit Plan Cash Balance Plan Plan Formula 2.4% of pay times years of future service 16% of pay credits to your “account” Accrued Benefit $107.72 a month payable at age 62 $8,000 lump sum
- 4. 44 Customizable Group A: 48% of Current Pay Cash Balance Credits Group B: 16% of Current Pay Cash Balance Credits Group C: Ineligible to Participate
- 5. 55 Commitment “Permanent & On-going” Employer Bears Funding Risk Even in a “bad” year!
- 7. 77 2010 Census Data Defined Benefit Position Age Plan Comp. Employer Allocation % of Pay Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 55 50 50 40 35 30 $ 245,000 245,000 50,000 40,000 30,000 25,000 $163,409 117,667 24,248 9,974 5,388 3,235 67% 48% 48% 25% 18% 13% Total to Owners Employee Total $ 490,000 145,000 $ 281,076 42,845 Plan Total % to Owners $ 635,000 77% $ 323,921 87% Comparison of Initial Allocations
- 8. 88 DB Problems Employee Cost Based Solely on Age Becomes an Issue for Owners of Differing Ages Benefit is Opaque to the Participants Defined Benefit Employer Allocation % of Pay $163,409 117,667 24,248 9,974 5,388 3,235 67% 48% 48% 25% 18% 13% $ 281,076 42,845 $ 323,921 87%
- 10. 1010 How It Works Cash Balance Credits Guaranteed Interest “Each owner will receive a credit of $117,600 and it is guaranteed to grow at 6.46% interest.” The benefits guaranteed by cash balance plans are usually insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC).
- 11. 1111 Non-discrimination Testing IRC 401(a)(4) & 410(b) HCE NHCE ““General Test” & “Average Benefits Test”General Test” & “Average Benefits Test”
- 12. 1212 Years Until Retirement 0 10 20 30 40 Avg. Employee Staff 4 Staff 3 Staff 2 Staff 1 Owner B Owner A
- 13. 1313 Census Data: Position Defined Benefit Cash Balance Employer Allocation % of Pay Employer Allocation % of Pay Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $163,409 117,667 24,248 9,974 5,388 3,235 67% 48% 48% 25% 18% 13% $ 162,925 117,600 9,500 7,600 5,700 4,750 67% 48% 19% 19% 19% 19% Owners Staff $ 281,076 42,845 $ 280,525 27,550 Total % to Owners $ 323,921 87% $ 308,075 91% Comparison of Initial Allocations
- 14. 1414 Census Data: Position Multi-Group Two Group Employer Allocation % of Pay Employer Allocation % of Pay Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $ 162,925 117,600 9,500 7,600 5,700 4,750 67% 48% 19% 19% 19% 19% $ 117,600 117,600 7,000 5,600 4,200 3,500 48% 48% 14% 14% 14% 14% Owners Employees $ 280,525 27,550 $ 235,200 20,300 Plan % to Owners $ 308,075 91% $ 255,500 92% Cash Balance Initial Allocations
- 16. 1616 Employer Deduction Limit IRC 404(a)(7) Not Covered by PBGC CB Plan* + 6% in 401(k) Or 31% of Eligible Payroll Participates in PBGC CB Plan* + 25% in 401(k) * Amount Necessary to Meet Plan Funding
- 17. 1717 PBGC Exemptions Owner Only Plans (10%+ Owners) Professional Practices < 25 Employees Medical & Dental Legal Architectural Engineering Accounting
- 19. 1919 Position Salary Deferral Employer Allocation % of Pay Plan Total Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $ 22,000 22,000 - - - $ 14,700 14,700 3,000 2,400 1,800 1,500 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% $ 36,700 36,700 3,125 2,500 1,875 1,563 Owners Employees $ 44,000 - $ 29,400 8,700 $ 73,400 8.700 Plan Total % to Owners $ 44,000 $ 38,100 77% $ 82,100 89% 3% Safe Harbor 401(k) & Profit Sharing Plan 6% of Payroll Limitation
- 20. 2020 Position 401(k) Total Cash Balance % of Pay Combo Total Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $ 36,700 36,700 3,000 2,400 1,800 1,500 $ 117,600 117,600 2,500 2,000 1,500 1,250 48.0% 48.0% 5.0% 5.0% 5.0% 5.0% $ 154,300 154,300 5,500 4,400 3,300 2,750 Owners Employees $ 73,400 8,700 $ 235,200 7,250 $ 308,600 15,950 Plan Total % to Owners $ 82,100 89% $ 242,450 97% $ 324,550 95% Two Group Combination Initial Allocations
- 21. 2121 Design Options Summary Position Defined Benefit 3 Group CB Plan 2 Group CB Plan Combo Plan Owner A Owner B Employees $ 163,409 117,667 42,845 $ 162,925 117,600 27,550 $ 117,600 117,600 20,300 $ 154,300 154,300 15,950 Plan Total % to Owners $ 323,921 87% $ 308,075 91% $ 255,500 92% $324,550 95%
- 22. 2222 PBGC Covered Plan 25% Plan Cash Balance 401(k) Plan
- 23. 2323 Position Salary Deferral Employer Allocation % of Pay Plan Total Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $ 22,000 22,000 - - - $ 32,500 32,500 4,500 3,600 2,700 2,250 13.3% 13.3% 9.0% 9.0% 9.0% 9.0% $ 54,500 54,500 4,500 3,600 2,700 2,250 Owners Employees $ 44,000 - $ 65,000 13,050 $ 109,000 13,050 Plan Total % to Owners $ 44,000 $ 78,775 83% $ 122,050 89% 401(k) Plan Component
- 24. 2424 Position 401(k) Total Cash Balance % of Pay Combo Total Owner A Owner B Staff 1 Staff 2 Staff 3 Staff 4 $ 54,500 54,500 4,500 3,600 2,700 2,250 $117,600 117,600 1,000 800 600 500 48% 48% 2% 2% 2% 2% $ 172,100 172,100 5,500 4,400 3,300 2,750 Owners Employees $ 109,000 13,050 $ 235,200 2,900 $ 344,200 15,950 Plan Total % to Owners $ 122,050 89% $ 238,100 99% $ 360,150 96% Two Group Combination Initial Allocations
- 25. 2525 Design Options Summary Position Defined Benefit 3 Group CB Plan 2 Group CB Plan Combo Plan Owner A Owner B Employees $ 163,409 117,667 42,845 $ 162,925 117,600 27,550 $ 117,600 117,600 20,300 $ 172,100 172,100 15,950 Plan Total % to Owners $ 323,921 87% $ 308,075 91% $ 255,500 92% $ 360,150 96%
- 26. 2626 Plan Benefits & Funding
- 27. 2727 Projected Benefits Allocations + Interest Credits @ 6.46%Ʃ Age Anticipated Credit Cash BalanceContribution Interest 56 $ 117,600 $ 0 $ 117,600 57 117,600 7,597 242,797 58 117,600 15,685 376,082 59 117,600 24,295 517,977 60 117,600 33,461 669,038 61 $ 117,600 43,220 829,858 62 $ 117,600 53,609 1,001,066
- 28. 2828 Market Rate of Interest 3rd Segment of Yield Curve. (6.80%)* 30 Year Treasury Yield (4.19%)* * Rates for Oct ’09 Look-back
- 29. 2929 Funding Yield Curve Segment 1 0 – 5 Years: 4.92% Segment 2 5 – 20 Years: 6.71% Segment 3 20+ Years: 6.80% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 1 2 3 Corporate Wtd. Avg. Index 6.46%
- 30. 3030 Plan Funding & Benefit Restrictions Funding Percentage Effect on Distributions 100% or higher Fully Funded No Restrictions 80 to 99% Sufficient Funding Restrictions for Key Empl. 60 to 79% Plan “at risk” Lump sums are restricted Below 60% Plan is “distressed” No lump sum, benefits frozen
- 31. 3131 Aligning the Rates Cash Balance Rate Yield Curve Plan Investments Corporate Wgt. Avg. Bond Index
- 32. 3232 Plan Administration Plan Documents Actuarial Certification Annual Reporting
- 33. 3333 Timing Plan Installation New Cash Balance Prior to last day of tax year Safe Harbor Elections New Plan: 10/01 Existing Plan: 12/01 of prior year Plan Contributions Deferrals As soon as possible Employer Contributions Tax Filing Date Extensions Not to Exceed 6 months Fund by 4/30 for FTAP Calculation Optimization
- 34. 3434 Conclusions Cash Balance Plans are DB Plans that Mimic DC Plans (in Certain Respects) Cash Balance Plan Design is Flexible Benefits Must Be Guaranteed by Sponsor Combination Plans are Powerful Professional Assistance is Required
- 35. 3535 What We Need… 1.Fact Finder/ Current Census Data 2.Existing Plan Document and Last Valuation 3.Goals and Objectives
- 36. 3636 Questions & Answers The Guardian Life Insurance Company of America and its subsidiaries, affiliates, employees, agents and representatives do not provide tax, legal, accounting, actuarial or investment advice. Clients should consult their own advisor and/or attorney regarding their specific situation.
Editor's Notes
- Why cash balance plans? As you know, a defined contribution plan, such as a 401(k), limits the Plan contributions to a participant to roughly $50,000. By contrast, a defined benefit plan’s maximum benefit has an annual cost that varies by the participants age, making them very valuable for individuals age 40 and older. Thus, if your client wants to break out of the $50,000 DC plan “box” – the only way to do so is to use a cash balance or other type of defined benefit plan.
- Let’s look at how a cash balance plan is different than a traditional defined benefit plan. Simplicity. The first fundamental difference is the way a cash balance plan states its benefit formula in easy terms for the participants to understand, and appreciate. This chart compares a typical defined benefit formula with that of a modern cash balance formula for a participant, age 50 with $50,000 of salary. The traditional defined benefit plan describes the method used to determine the participant’s monthly benefit payable at retirement. By contrast, a cash balance plan often states the amount the employer will contribute annually on behalf of the participant. In the example above both of these formulas actually net the participant the same retirement benefit (if you convert the cash balance account to an annuity using the same mortality and interest assumtions) but the cash balance plan is much easier to understand.
- Customizable. The second fundamental difference is that our cash balance strategy also allows the Plan sponsor to tailor benefits to favor select classes of employees. By weighting benefits to the preferred participants, employers may often take full advantage of the substantial tax-savings allowed by defined benefit plans while keeping the employee cost reasonable. Note how the plan benefits are not based directly or indirectly on age. However, to achieve this type of formula, the participants of Group A would need to be nearer retirement (i.e. older) than the participants in Group B. Group A and Group B would also have to be defined in a way that is not directly or indirectly based on age unless every Group A particpant will always be older than every Group B participant. Also, although all potentially eligible employees need to be considered, cash balance plans need not include everyone. They can often be crafted to exclude up to 60% of the otherwise eligible employees if that is a design goal. You should also note that providing different benefits to different groups or excluding groups will require the plan to be subject to nondiscrimination testing, which may limit the design choices available in a cash balance plan.
- Commitment. As with all defined benefit pension plans, a cash balance promise, once made, must be kept. Under the terms of ERISA, a pension plan must also be considered permanent and ongoing. Therefore, these plans are suitable for your clients that have stable earnings and who can make a long term commitment to maintaining the Plan and making the required contributions each year.
- Before we move onto plan design, does anyone have any questions? Let’s now turn to plan design.
- To better understand how a defined benefit plan works, please take a moment to look at the defined benefit portion of our case study. You will note that the cost of the benefit is directly related to the age of each participant. In this example, Owner A is the oldest and his benefit may have a much higher cost than any younger participant. Also, as Owner B and Staff 1 are both age 50, the cost of their benefit is the same from a percentage of pay vantage. However, as the owners are older than the employees, the plan design will favor them leveraging 77% of the eligible payroll into over 87% of the attributable plan benefits.
- Defined Benefit Problems. When small business owners are seeking to optimize a retirement plan for themselves, they often carefully asses the cost of each participant and compare it to the cost of their own benefit. Staff members that are the same age or older than the owners may prove a challenge. Another important consideration is that equal owners often prefer a similar cost for their benefits, otherwise the younger owners may perceive that they are subsidizing their business partners. A traditional defined benefit plan may work quite well when all the owners are identical and each staff member is several years younger. However, this is rarely the case.
- &lt;number&gt; A Cash Balance plan offers design flexibility when compared with traditional defined benefit plans. They can often be tailored to match the specific needs and goals of the employer by providing differing benefit accruals for clearly identifiable classes of employees.
- &lt;number&gt; Unlike traditional pension plans that work like Social Security and provide a monthly check at retirement, a cash balance plan’s benefit is very easy to calculate and understand. You, as the employer promise to make an annual cash balance credit to each eligible participant and then guarantee that this “cash balance” will grow at a pre-determined or indexed permissible interest rate. For example… read slide. It is important to note that the cash balance benefit will grow each year by this rate, regardless of the actual performance of the underlying funds. Therefore, these plans, like traditional pension plans, create a funding liability and some risk to the owners of the practice. A cash balance plan is a solemn promise that must be kept.
- &lt;number&gt; Cash Balance Solution. A cash balance plan may be tested for nondiscrimination under regulations that were finalized in 1993- the general test for nondiscrimination under IRC 401(a)(4). It is popularly known as new comparability where a TPA firm demonstrates the projected benefits at retirement for owners and staff are within IRS requirements and are substantially equivalent. It works best when the owners and other preferred participants are 10 or more years older than the age of the average staff participant.
- The underlying dynamic behind these tests is the time value of money. In order to have comparable benefits at retirement age, participants with more years to accrue their benefit need far less money than those that are approaching retirement age. In our case study, the owners have 7 and 12 years respectively before they reach age 62, our testing age for this design. However, the “average” staff member has 23 years until they reach retirement. When you account for the time value of money, it is easy calculate how 16% of pay to our “average” employee would provide an equivalent benefit of 55% of pay for the owners.
- Multi-Tier Approach Some actuaries will recommend that each owner be placed into their own class and then the remainder of the employees be placed in one or more, clearly identifiable classes. We illustrated this technique in our first cash balance design. A review of our Cash Balance design shows that each owner may receive a cash balance allocation that is equivalent to our traditional defined benefit plan. We then solved for the equivalent benefit to give to the employees that have a much lower average age. The actuary may then mathematically prove that the “average” employee will receive an equivalent benefit at age 62 to our owners who have a higher average age. The result is an initial benefit cost savings of nearly $17,000.
- Two-Group Approach If your client’s goal is to give each owner the same cash balance contribution, we can easily achieve this by placing all owners in one class as demonstrated in ourTwo Group design. Note, however, that each owner must be satisfied with a benefit that can be attained by the youngest owner as when this benefit is projected to retirement, it must satisfy the maximum benefit limit for all defined benefit plans. Another observation you should make is that by lowering Owner A’s benefit we were also able to reduce the employee allocation saving the employer nearly $25,000 in the first plan year alone when compared to the classic defined benefit plan. This savings may actually grow each year as the new funding rules for defined benefit plans are now back-loaded- the cost will likely rise over time as participants age.
- When you combine a 401(k) Plan with a Cash Balance Plan, synergies often occur. As most good cash balance candidates already sponsor a 401(k) plan, building on this foundation may be a of good plan design.
- Another welcome change brought by the 2006 Act was a provision to relax the dual plan limit of 404(a)(7) further by allowing a plan sponsor to fully deduct the defined benefit plan AND deduct up to 6% of pay in a 401(k) plan (in addition to any pre-tax participant contributions). Another option is to make sure that both the cash balance and employer allocations in the 401(k) plan do not exceed 31% of the eligible payroll but employer allocations in the 401(k) plan cannot exceed 25% of payroll. This dual plan deduction limitation was repealed completely if the cash balance or defined benefit plan is covered by the Pension Benefit Guaranty Corp. (PBGC) allowing the small business owner to fully deduct up to 25% of pay in the DC plan and the amount needed to fund the cash balance plan.
- Thus, when doing Plan design, it is important to know which Plan sponsors are eligible to participate in PBGC and which are not as PBGC does not cover all plans. Our first notable exception to coverage is plans that cover only “substantial” owners – generally those with at least 10% of ownership in the business (including attribution to spouses and some family members). Another broad exception to PBGC coverage are professional employers that never had more than 25 “active” participants. The professions generally include these basic five categories of business (which happen to comprise the ideal target market for cash balance plans): Medical & Dental Legal Architectural Engineering Accounting
- Let’s begin our combo plan case study analysis looking at how we could design a Plan for a business whose pension is NOT covered by PBGC- for example, a small medical practice.
- When looking to make sure that the combination plan always satisfies the 6% of payroll dual plan limitation, one approach is to simply allocate 6% of pay to each eligible participant. A 3% non-elective safe harbor contribution can also eliminate discrimination testing for the deferrals, allowing each owner to defer the maximum without regard to whether or not the employees participate. Of course, each employee may defer $0 – 16,500 in 2009 or 2010 and those age 50 or above may add an additional $5,500 as “catch-up” deferrals. When you sum the deferrals and profit sharing, you should note, however, that the owners have not hit the $49,000 – 5,500 benefit limit. By itself, this would be suboptimal. However, we can more than make up for this by layering a cash balance plan on top of our 401(k).
- Let’s assume that the two owners desire the same employer contribution in their combination plan and use a two-tier design. We’ll therefore place each owner in Group A and all other eligible employees in Group B. Once we determine that we want to allocate 48% of pay to each owner in the cash balance plan, we can then test the 6% awarded to each employee in the 401(k) plan and solve for a uniform contribution to each employee such that both Plans, together satisfy the general test of nondiscrimination under IRC 401(a)(4).
- Before we close out our Plan design conversation, let’s compare how are Combo Plan – with the 401(k) employer contribution reduced to only 6% of payroll – compares to the stand-alone defined benefit and 2 group cash balance plan options. Clearly, even with the reduced profit sharing contribution, the combination plan provides attractive benefits to the owners while controlling employee benefit cost.
- Let’s now look at some design options for this business if the cash balance plan is covered by the PBGC (and is not a small, professional practice).
- Let’s assume that this plan is covered by PBGC. A combination plan is typically designed by first optimizing the 401(k) plan and then layering a cash balance plan on top. Let’s start with the 401(k) dimension. Although the employees should be encouraged to defer, we will exhibit only what the owners are putting into the Plan through the employer allocation and their own deferrals. As each is at least age 50, they may defer $16,500 + 5,500 catch-up for a total of $22,000 using the 2009 limits. We then placed the two owners in one group and the balance of the employees in another and gave the employees a significant profit sharing allocation. By providing the majority of the employee benefits inside the 401(k) plan, the owners decrease their investment risk with respect to the staff employees as the investment results of the 401(k) plan are not guaranteed. This design will require annual testing to ensure the allocations are nondiscriminatory.
- Because we were so generous to the employees in the 401(k) plan, our cash balance plan can be far more modest. In this case, we have awarded the employees only 2% of pay in the cash balance plan and each owner 55%. By itself, this plan would likely fail discrimination testing. However, we are not testing 2% compared to 55%, we are testing 11.5% (the cash balance plus the profit sharing allocation) to 68.3%. This ratio of benefits is more likely to pass testing using the “new comparability” method when the employees are 10 or more years younger than the age of the owners. When you add the benefits of both plans, the results are significant. The owners receive 96% of the nearly $400,000 allocation and clearly break out of the $50,000 box that DC plans are subject to.
- Let’s summarize the design options we have explored for this case study and compare each approach to our benchmark defined benefit plan. Our 3 group cash balance plan mirrors the defined benefit plans for the owners, but lowers the potential employee benefit cost by over $17,000. The 2 group cash balance plan levelizes owner’s contributions (which is often a design goal for partnerships and S Corps) and because the owners get less as a group, the nondiscriminatory allocation for the employees may also be reduced. We crafted a 401(k) & cash balance combination plan using our two group approach to not only levelize the owners but to dramatically lower the employee benefit cost. Better yet, as the employees receive most of their benefits in the 401(k) plan, the owners have less risk in securing their future promised benefits.
- Now that we have shown how cash balance plans can be tailored to meet the specific needs of the small business that sponsors one, let’s turn to the important topic of Plan benefits and funding.
- Let’s take a look at the benefit that is expected to be accrued and vested wtihin three years… As with its current benefit, the potential retirement benefit of a cash balance plan is also fairly easy to understand. The benefit will be the sum of the theoretical contributions and interest credits made to the participant’s “account.” However, lifetime payments and qualified joint annuities must still be offered. Our example below is for Owner A of our case study and assumes a 6.46% rate. However, the crediting rate is most often an indexed rate that will change from year to year and the annual compensation limits is also indexed to inflation. Thus, these results are hypothetical.
- “Market Rate” of Interest Proposed regulations allow the Plan sponsor to select from a menu of permissible “market rates” to credit the cash balance hypothetical account of each participant. Typically, the Plan document will specify the applicable index and this becomes the crediting rate for the given Plan year. Permitted rates currently include: 30-year Treasury Bond Yield Third Segment of the Funding Yield Curve Other rates, including a fixed rate (such as 4 or 5%) may also be permitted when the IRS issues final regulations. The actual rate used will often be selected by your client after conferring with the Plan actuary. Once a method is selected, it will be difficult to make any change, and in some cases, changes will not be permitted as this rate has the greatest impact on each participant’s retirement benefit. It is also the rate that the Plan Trustee must manage the investments to achieve to avoid over or under-funding the Plan.
- Prior to PPA ’06, the Plan’s actuary had broad discretion to select assumed interest rates and mortality table to determine whether or not Plans are appropriately funded. In 2008, that changed dramatically. Regardless of what rate is assumed, all defined benefit plans in the United States must determine their funding using what is termed the “funding yield curve.” This is basically a table of corporate weighted bond indexes of various durations. To add a point of reference, we have added the rates that comprised the funding yield curve that may have been selected by a Plan Actuary for a 2009 cash balance plan. Typically, the actuary is allowed to pick a month for the yield curve within four months of the Plan valuation date. However, once the method for determining which rate set to use is selected, it may not easily be changed other than for some transition funding rules for 2008 and 2009. The actuary then matches how far each participant is away from retirement and determines the present value of their promised benefit using the appropriate segment rate. Let’s take a look at how this works…
- Lump Sum Restrictions The 2006 Act mandates that defined benefit (including cash balance) plans adhere to strict funding rules prescribed by Regulation. These new rules often afford some flexibility to the Plan sponsor, but minimum funding targets must be met or certain restrictions may apply to the Plan benefits. Below is a summary of required funding targets and their effect on distributions. Funding Target Attainment Percentage (FTAP) 100% or higherPlan is fully funded and all participants may take lump sum distributions unless otherwise restricted by other Plan terms. 80 to 99%Plan funding is sufficient, and all rank-and-file may take lump sum distributions. Certain owners and top paid employees lump sum may be restricted to ensure full funding continues. 60 to 79%Plan is deemed “at risk” and lump sum benefits are restricted for all participants. Below 60%Plan is distressed and no new benefits may accrue, and lump sum benefits greater than $5,000 are disallowed.
- As with any defined benefit plan, once your client makes a promise, they must deliver. Thus, the client will need to balance the Plan assets with the Plan liabilities (benefits). These liabilities are calculated using the Funding Yield Curve as published by the IRS and are based on a blend of corporate bond indexes regardless of the cash balance crediting rate or other actuarial assumptions. A portfilio that stays within the yield curve may therefore produce the most predictable results. If the Plan assets perform better than expected, the benefits will not change, but the required contribution will decrease. Conversely, if the Plan investment experience is unfavorable, the plan sponsor will need to make-up for the investment losses over time. It is therefore important to balance the Plan assets with the Plan liabilities and invest into financial products that are reasonably expected to deliver. For example, if the cash balance crediting rate is 6.14%, investing all the assets into international growth funds may not be reasonable or prudent. Conversely, placing all the assets into a money market may not work well either. Because a small business Plan sponsor is typically the Trustee and also a fiduciary, they may need help. Some companies, have specially designed funds that may be suitable. Thus, the Trustee can go-it-alone or tap into available institutional expertise.
- Plan Administration Most cash balance and combination plan clients will require the services of a pension actuarial and administration firm. That’s because cash balance plan funding needs to be calculated and certified each year. In addition, plans that use a new comparability strategy need to be tested for nondiscrimination each and every year. Some administrative services may include: Prepare and update the Plan documents (to include a master trust if applicable) Calculate benefits for new and existing participants Extensive annual nondiscrimination and compliance testing Print schedules of any increases and additions Prepare individual employee benefit statements Prepare IRS form 5500 series to include actuarial certification of the cash balance plan Prepare distribution packages for appropriate employees Ongoing client consultation
- For a calendar year tax payer, there are important dates to remember.
- Read the slide.
- We have certainly covered a lot of ground in the past nearly two hours. Perhaps the best way to find out whether or not a cash balance is a good alternative for one of your clients it to request a design study. We have included our fact finder that will help you organize a case for a no-cost or obligation desgin study. Before we go, let’s open this up for your questions.
- OK - Let&apos;s open the call up to some Q&A.