Cash Balance Plans: Using the tax code to help your retirement planning


Also see:  Is a Cash Balance Plan the Right Plan for You?

Pick up the October 2016 issue of Inc. Magazine and you’ll be able to read an article featuring the 401(k) Quarterback himself; Mr. Joe Gordon.  The article, titled “The One Way the Tax Code Can Help Your Retirement Planning“, provides insights into retirement plan options for small business owners.

As highlighted by Joe in the article, an effective way for business owners to save for retirement is to capitalize on the massive tax savings potential of a cash balance plan.  Cash balance plans are a hybrid form of defined benefit (pension) plan that, when coupled with a 401(k) plan, can offer significantly more tax-deferred savings than a 401(k) alone.  A 401(k)/cash balance plan ‘combo’ can also yield significantly greater owner-to-staff funding leverage than a standalone cross-tested 401(k) profit sharing plan.

“Many professional businesses can add a tax-qualified cash-balance plan affordably. In many cases, employee pension costs go from just about 4.5 percent of payroll to 7.5 percent. The precise figures could be higher depending on the age of your work force–but it’s worth doing the math to see if you can catch up on your retirement goals, while helping your employees reach theirs as well.”
-Joe Gordon

The advantages of cash balance plans, however, don’t come without risks.  Any constructive discussion about cash balance should begin with a frank discussion of the potential pitfalls.  These plans are often very complicated and if mismanaged could be a significant liability.  Consider the following:  How is the plan affected if there is a significant market correction?  What happens if an owner leaves and there is a funding shortfall?  Does a departing owner share in any funding liability?  Seasoned experts can help structure your plan to mitigate these risks.

For more information, or if you need help launching your cash balance plan, please contact us.


The opinions expressed are those of Gordon Asset Management, LLC (GAMLLC). The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. This material is not financial advice or an offer to sell any product.  Past performance is not indicative of future results. GAMLLC reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The investment strategy or strategies discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Gordon Asset Management is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. More information about the adviser, its investment strategies and objectives is included in the firm’s Form ADV, which can be obtained, at no charge, by calling (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

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Todd Zempel, known as "Z", has over 12 years of extensive industry experience. Prior to taking over retirement plan operations for the Gordon Asset Management, Z spent a decade as a TPA and record-keeper. Z holds the Accredited Investment Fiduciary Analyst (AIFA) designation Qualified 401(k) Administrator (QKA) designation, and is a Certified Plan Fiduciary Adviser (CPFA). Z was voted one of the nation’s top 50 retirement plan advisors under the age of 40 in 2015.