Cash Balance plans continue their impressive growth rate. Accordingly to the 2016 Cash Balance Research Report recently published by Kravitz, Inc., the number of new Cash Balance plans increased by 19% with assets increasing to $1 Trillion.

Historical Background

The actual number of Cash Balance Plan, 15,178,  may not sound like much in the universe of approximately 700,000 retirement plans, but there were only were only 3,893 plans in 2006 when the Pension Protection Act of 2006 was passed which removed ambiguity about these plans.

Now today:

  • Cash Balance plans now make up 29% of all defined benefit plans, up from 2.9% in 2001.
  • The 19% growth rate significantly outpaced the 2% growth rate of new 401(k) plans.

Reasons for the Growth

What’s behind this growth? Two very related economic factors:

  1. Rising Taxes. The 2013 tax increases motivated business owners and professionals to maximum tax deferred contributions to retirement plans.
  2. Inadequate Retirement Savings.  Older business owners and professionals have a greater awareness and need to accelerate retirement savings.

Cash Balance plans can do exactly that. For example, depending on age and compensation, the annual contribution could be in excess of $250,000 compared to $59,000 with a 401(k) and profit sharing plan. That could generate a Cash Balance maximum lump sum or $210,000 or a $210,000 annual annuity.

How do Cash Balance plans work? Stay tuned.

Image: Can Stock Photo