Cash-Balance Client Profile

[JAY21]

I'm trying to put together a general profile of the type of small client that might benefit from a cash-balance plan (assume it's primarily for max tax purposes). I have the following thoughts and would appreciate any comments and additions.

1. Multi-owner situations where partners want same contribution level above 41k.

2. Plans where there are employees who might better understand and appreciate the cash-balance structure.

3. Situations where a cross-tested profit sharing plan would work well a cash-balance plan (general tested) may also but with higher contribution potential.

Other thoughts ? Thanks.

[Blinky the 3-eyed Fish]

1. Absolutely

2. Right on brother!

3. Good one also. While testing a cash balance plan for nondiscrimination is not going to be different than a traditional DB, the ability to seamlessly give similar cash balance allocations to younger versus older employees is helpful to pass testing.

My #4: a cash balance plan can control the escalating costs that are inherent with the unit credit funding method. They are an advantage if that is a concern.

P.S. Prepare for "are you crazy!" comment from mbozek for considering a cash balance plan. But I say that with love, because he may be right in the end that these plans will blow up. Personally, I don't hold that view.

[mbozek]

I dont disagree with blinky's comments if the sponsor is aware that the courts could require additional contributions if the interest credits are held to discriminate against older employees under ERISA. If the plan does not cover too many non owners and the owners understand that additional benefit accrual could be required then go ahead and adopt a CB plan. Congress could force the IRS to issue regs that could result in additional costs.