While they’ll never eclipse 401(k) plans in terms of sheer numbers, cash balance plans continue to grow in popularity. The number of plans grew from 1,500 in 2001 to 7,500 in 2010 — an average annual growth rate of around 20%, according to Sage Advisory Services.
Following the industry’s time-tested growth path, cash balance plans are moving down market, as more mid-sized and small employers — especially high-tech firms and law firms — follow the large firms that were early adopters. The main reason: higher contribution limits than are available in 401(k) plans. Other advantages include flexibility, transparency and employee satisfaction.
As a hybrid product – essentially a DB plan that looks and feels like a DC plan to participants — disadvantages include finding the right targeting mix, liquidity risk, volatility, risk preferences of the plan sponsor and the size and structure of the company, as well as unknowns like employees terminating and retirees choosing a lump-sum payment. In short, cash balance plans are not a one-size-fits-all solution, but they are continuing to see market penetration.
