Defined benefit plans, as well as defined contribution plans, are both yielding ground to the expanding cash balance plan segment. Both Kravitz, a firm that designs, administers and managing corporate retirement plans, and Russell Investments have released information showing that such hybrid plans — which have attributes of DB and DC plans — are growing in numbers and assets.
According to Russell, the percentage of DB plans that call themselves cash balance plans has risen by 17 percentage points since 2000, to 20%. Kravitz, in its 2014 National Cash Balance Research Report, puts that percentage even higher, at 25%. Kravitz also reports that:
• Cash balance hold $858 billion in assets, with $31.2 billion of which was added in just the last year.
• Employers tend to contribute more to retirement accounts when a cash balance plan is among the retirement benefits they offer.
• Employers with 100 or fewer employees offer the vast majority — 87% — of cash balance plans; nonetheless, they are growing among Fortune 100 companies as well.
And cash balance plans are affecting DC plans, too. Russell Investments in its Fiduciary Matters blog reports that based on Forms 5500 filed with the Department of Labor, the growth in the number of cash balance plans is more than outpacing that of DC plans. Kravitz cites IRS statistics that show there were 9,648 cash balance plans in 2012, a 22% increase from the 7,926 that existed in 2011, while the number of DC plans grew by 1% during that time. Russell says that there are six times as many cash balance plans than there were in 2000, while the number of DC plans has dropped by almost 10% since that year.
But cash balance plans are not a panacea, says Russell. It points out that while cash balance plans are more portable, they also can be more risky for an employer and also can be underfunded.
Russell also says that based on public filings, it expects the trend to continue.
