There’s a saying that if you’re a hammer, the whole world looks like a nail. For plan advisors focused on 401(k) plans, they might be offering K plans to all clients — even those that might be too small or as a one-stop solution for all retirement needs. Cash balance plans, on the other hand, might be right for smaller companies who don’t want the administrative headaches or liability of K plans, especially their unattractively low deferral limits.
The advantages of a CB plan include:
• Larger deferrals
• Tiered benefits
• Easier to understand for participants than DB plans
• Greater funding flexibility than DC plans
And the disadvantages:
• Actuarial services are required
• Restrictions on lump sum payments
• Employers bear investment risk
• PBGC premiums
• Cost of customized plan docs
Good candidates for cash balance plans include:
• Companies where owners, partners or key employees want to contribute more
• Stable business not affected by economic volatility
• Have older key employees and younger staff