It is crucial to have a thorough understanding of your organization in order to determine a plan design that best meets the retirement goals of the employers and employees. Below are five questions to help determine if you may be an ideal candidate for a cash balance plan. If you answer “yes” to most of these questions, a cash balance plan could be the right plan for you.
Five Cash Balance Questions
- Do you owners already maximize their contributions to a defined contribution (401k) plan?
The defined contribution limits for 2015 are as follows: 401(k) elective deferrals up to $18,000, profit sharing and matching contributions up to $53,000 (including elective deferrals), and catch-up contributions up to $6,000 for participants 50 and older.
- Do the highly compensated employees (HCEs) wish to contribute far more than the defined contribution limits will allow?
If so, then a cash balance plan may be the answer.
- Is there a low ratio of non-highly compensated employees (NHCEs) to highly compensated employees?
The lower the ratio of NHCEs to HCEs, the more appealing a cash balance plan becomes.
- Are the HCEs older than the NHCEs, on average?
The greater the disparity the better, with the HCEs being the older group.
- Will the company have significant and consistent cash flow moving forward?
With a cash balance plan, profit sharing contributions in the defined contribution plan are no longer discretionary.Employers in non-cyclical industries are better cash balance candidates.
If you think Cash Balance may be a good fit for your firm, contact us!
If you think Cash Balance may be a good fit for your firm, please contact us.
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