A Cash Balance Plan (CBP) combines the reliability of traditional pensions with the flexibility of Defined Contribution Plans like 401(k)s. CBPs provide participants with an individual account that accrues a set percentage of their salary along with interest over time, allowing the balance to grow annually.

Business owners, high-income professionals, and small to mid-sized companies typically benefit the most from CBPs.

• For business owners, this structure offers the potential for significantly higher contributions and valuable tax advantages, along with predictable and guaranteed returns.
• It appeals to businesses with stable cash flows, as the plan requires predictable annual contributions.
• CBPs are well suited for business owners nearing retirement who want to maximize tax-deferred savings, reduce taxable income, and rapidly build wealth.

The older the participant, the higher the contribution limits¹.

Business owners should consider the risks involved:

• Financial obligations to meet guaranteed returns, regardless of market performance
• Ongoing administrative costs and regulatory compliance
• Investment risks and the responsibility for ensuring assets grow sufficiently to cover future liabilities
• Potential funding shortfalls or penalties in the event of management failure

Cash Balance Plans combine the individual account flexibility of Defined Contribution Plans with guaranteed returns and predictable contributions, providing a hybrid solution for high-income professionals and business owners. They are perfect for individuals seeking significant tax-deferred savings and wealth growth near retirement. However, participants should be mindful of the administrative and financing risks, as CBPs come with financial obligations and require steady cash flows.