Adding Cash Balance to PS/401(k)

[RAPD]

One of our current plans is asking about the possibility of adding a Cash Balance to their existing Safe Harbor 401(k)/Profit Sharing Plan.  They are a medical practice with 115 participants.   10 Doctors and 105 non highly's.  They currently have a SH Match with a Profit Sharing in place to maximize the Doctors allocation. 

They are wondering if it would be possible to add in a Cash Balance plan for the Doctors as they wish to put away a higher annual contribution.    I do not have much experience with CB plans so i am wondering if this is possible?  And if so how many of the NHCE's would need to be included in the CB?  

Also of note, they may be merging with a group of 4-5 other medical practices a couple of years down the road possibly becoming a controlled group.  The other practices have plans in place however I don't know if any of them are CB plans.  I know that they all have 401k plans in place but i don't know if any of them have CB plans as well.  What type of issues if any could arise in this situation?

[Effen]

There is a whole lot of consulting in that post.  Every situation is different and you should ask your attorney or accountant friends to recommend an actuary who works with cash balance plans.  I am willing to help off-line, as I am sure many others on this board would as well.

To answer some of your questions - yes, a cash balance plan may fit.  It isn't simply an add on to your existing PS, but it is a separate defined benefit plan that is usually combined with the profit sharing/401(k) for non-discrimination testing. With a plan of your size, you are also talking about PBGC oversight - which generally isn't bad until you are ready to terminate the plan.

Many different theories and opinions about "reasonable" cash balance plan designs.  Some are very vanilla, others push hard against the regulations.  Generally, cash balance plans often look like cross tested profit sharing plans.  Defined groups getting different allocations as long as they comply with the rules.  You generally need to cover 40% of the workforce, but some "floor offset" designs get around that with creativity.  You need to provide minimum benefits, you may have additional deduction caps, PBGC premiums can be a significant added expense, plans are more expensive to administer. 

But, annual benefits for older individuals can easily exceed $150K and staff costs generally settle in around 5%-10% - assuming 3%-6% Profit Sharing allocation.

You would need census data to see how it could really work in your situation, but if they are maximizing the profit sharing allocations and still want more, cash balance is the next logical step - assuming they are willing to share a little with the employees.

 

[RAPD]

Thank you Effen, that was exactly the type of info i was looking for.   and thanks for offering to assist offline, i may take you up on that, how can i obtain your contact info?