Cash Balance Plan
M axi mi z i ng Yo u r R e t i r em en t B en ef it s
A
cash balance plan is a hybrid retirement plan designed to combine some of the best features of defined
contribution and defined benefit plans.
A Cash Balance plan is a defined benefit plan with much of the flexibility and portability of a defined contribution plan.
The defined benefit characteristics allow for larger tax-deductible contributions, and require minimum funding and
a promise to pay benefits. But unlike traditional defined benefit plans, benefits are communicated as notional or
hypothetical account balances and are easier for participants to understand.
I s a C a s h B alance
plan ri g h t for y o u ?
How does it work?
n Hypothetical Account: The firm makes annual contributions to the plan.
Do you currently
sponsor a 401(k) or
other retirement plan?
YES
NO
Are you looking to
increase tax-deductible
contributions beyond
what is permitted under
Profit Sharing plans
such as 401(k)s?
Does your Firm have
consistent cash flow?
Is your Firm willing
to commit to making
larger retirement plan
contributions for at
least 5 years?
Are you willing to make a
contribution up to 7.5% of
employee compensation
to benefit from larger tax
deductions?
Those contributions and interest are credited to participant hypothetical
account balances.
n Retirement Benefits: The hypothetical account balance can be converted
into a monthly benefit (annuity) payable at retirement or paid as a lump sum.
n Pooled Investments: Employers make all investment decisions and generally
invest in assets in a manner intended to track the plan’s stated interest credit.
n Required Contributions: Employer contributions are required and the annual
amount must not be less than the minimum amount determined by an actuary.
n Combo Plans: A Cash Balance plan can be in addition to a 401(k) or profit
sharing plan to allow for even higher savings.
Investments
Plan
Sponsor
Account
Balance
Lump Sum
Participant
and Retirees
or
Annuity
IF YOU ANSWERED YES TO ANY OF
THESE QUESTIONS, A CASH BALANCE
PLAN MAY BE RIGHT FOR YOU.
If investment returns
, then Plan Sponsor’s contributions may
(and vice versa)
The ABA Retirement Funds Program (“the Program”) is working with
Cornerstone – Gencorp – Hilb Group to streamline the installation of
and maintain ongoing services for certain plan design options.
A DIFFERENT KIND OF RETIREMENT PLAN
Call an ABA Retirement Funds Program Regional Representative today at 800.826.8901.
www.abaretirement.com
02/2016
Cash Balance Plan
How should contributions be invested/managed?
n Employer is responsible for the selection of investments from the Program’s
investment options.
n Employer contributions to the plan will be held in a trusteed investment account.
CASH BALANCE PLAN SERVICES AND
FEES PROVIDED BY CORNERSTONE
n Most employers utilize an investment strategy meant to achieve an investment
return equivalent to the interest rate set forth in the plan document.
n Plan Design Consulting
n Legal Plan Documents Restatements
A Potential for more savings n Participant Distribution Packet
Exhibit 1 provides an example of a Cash Balance plan that credits 4% of compensation
n Plan Amendments
n IRS Application for Determination Letter
per year with an interest credit of 5%. The illustration only shows the first 3 years.
n 401(k) Cross-tested Plan Design Services
$420
Fixed Contribution
Interest Credit
NO CHARGE
3 Year Total
$4,400
$200
Not drawn to scale.
Annual Administration Fees
Flat Fee Based on Number of
Eligible Participants
$13,220
$4,200
$4,000
Eligible Participantsadministration fee
YEAR 1
$100,000
Compensation
1-10$2,500
YEAR 2
$105,000
Compensation
YEAR 3
$110,000
Compensation
3 Year
Total Account
Balance
11-15
$3,000
16-20
$3,500
Asset accumulation in Cash Balance plans can become an important part of an
21-25
$4,000
individual’s retirement planning. The maximum annual dollar amount that may be
Over 25
Call us for a quote
Note that the administration fee includes
401(k) cross-tested plan design services.
credited is related to the age of the participant, and can potentially exceed
$2 million in some circumstances1.
Exhibit 2 highlights potential contributions under a combination 401(k) and
Cash Balance plan.
Contact us to discuss
if a Cash Balance plan
can benefit your firm.
DEMOGRAPHICSCONTRIBUTIONS
Employee
401(k)
Employee
Contribution
Profit
Sharing
Cash
Balance
Credit
Total Without
401(k) Employee
Contribution
Age
Salary
Owner
55
$250,000
$22,500
$10,000
$145,000
$155,000
Employee 1
25
$30,000
$0
$1,650
$600
$2,250
Employee 2
30
$25,000
$500
$1,925
$700
$2,625
Employee 3
35
$40,000
$1,500
$2,200
$800
$3,000
Employee 4
45
$45,000
$3,000
$2,475
$900
$3,375
Employee 5
55
$50,000
$5,000
$2,750
$1,000
$3,750
47.62%
97.32%
91.18%
% of contribution to owner
In this example, the owner was able to contribute more than 60% of compensation by making contributions for
the employees of approximately 7.5% of pay.
This is a hypothetical example dependent on specific assumptions and used for illustrative purposes only.
800.826.8901
1
[email protected]
www.abaretirement.com
For illustration purposes only. Refer to your Cash Balance plan document for fixed contribution and interest credit details.
Please read the Program Annual Disclosure Document (April 2015), as supplemented (September 2015), carefully before investing. This Disclosure Document contains
important information about the Program and investment options. For email inquiries, contact us at: [email protected].
Securities offered through Voya Financial Partners, LLC (Member SIPC).
Voya Financial Partners is a member of the Voya family of companies (“Voya”). Voya, the ABA Retirement Funds, and Cornerstone – Gencorp – Hilb Group, are separate,
unaffiliated entities, and not responsible for one another’s products and services.
© 2015 ABA Retirement Funds Program
CN0228-8321-0315