News Archive

"This update would amend Topic 715 of the FASB Accounting Standards Codification, which governs the measurement of pension liabilities for a plan sponsor's financial statements.... The proposed update would result in liability measurements that more closely track the account balances, consistent with the plan sponsor's true financial obligation."  MORE >>

"The gateway is not the full nondiscrimination test; it is a threshold that must be met before the plan can use more favorable combined testing. In practice, it is supposed to prevent a plan from giving HCEs richer DB/DC combinations while NHCEs get only token allocations."  MORE >>

"The salary scale factor need not be the same as the 8.5% rate applied to the contribution since then we would be back to an allocation based on current compensation as the factors in the numerator and denominator would cancel out. But when salary scales were prevalent in funding defined benefit plans they were lower than the rates used to project earnings so there would still be some level of favoritism towards older participants (i.e., those who decide whether to set up a plan in the first place)."  MORE >>

"But if one had either the inclination or the incentive to think about what is going on here they would notice that HCE is getting his money in 2031 while NHCE is getting his in 2056 with that time value of money difference ignored. In any case, these age weighted Profit Sharing plans are not going away even if younger lower-paid employees were ever to wise up.... [B]ased on 2024 5500-SF filings, 30% of all Defined Contribution plans (212,662 out of 720,335) use age weighting in their allocations."  MORE >>

"The current accounting rule may make sense for a traditional cash balance plan, in which the interest crediting rate is generally unrelated to the plan's discount rate, by allowing recognition of the economic effect that difference. But MRCB plans function much more like defined contribution plans, where returns on plan accounts equal returns on plan assets. In that context, as FASB says, the current accounting rule 'may not reflect the economics of those plans.' "  MORE >>

"The Wall Street Journal called it 'The Retirement-Savings Weapon Doctors and Lawyers Use to Build Wealth' and 5500 and 5500-SF form filings for 2024 reported that, of the 39,194 Schedule SB filings for Defined Benefit plans, 27,462 were for Cash Balance (CB) plans of which at least 20,919 satisfied coverage and nondiscrimination requirements by combining the CB plan with another plan. This series will examine how Cash Balance plans became so popular with an emphasis on how nondiscrimination testing got weaponized."  MORE >>

"In a combo design the employer's defined benefit and profit sharing contributions are aggregated and tested on a benefits basis ... The idea is for the owner/key employees to receive more of their retirement value in a DB plan, while rank-and-file employees receive more through a DC plan ... For 2023, Form 5500-SF included a new compliance question: [14a] Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules? So how prevalent is a design that warrants this question?"  MORE >>

"The June 10 draft proposes amending the Accounting Standards Codification to require that firms value the cost of benefits offered as market-based cash balance plans ... by setting the discount rate equal to the assumed interest crediting rate.... Almost 60% of all DB plans in the U.S. are now cash balance plans, ... In 2018, only about 10% of cash balance plans used a market-based crediting rate, but that figure now sits around 60%."  MORE >>

"MBCBPs are accounted for as DB plans under U.S. GAAP, but stakeholders have raised concerns that there are different interpretations of how ASC guidance applies to MBCBPs, resulting in accounting liabilities not always reflecting the economics of MBCBPs.... By enhancing clarity, consistency, and alignment with the underlying economics of these plans, the new FASB guidance may make MBCBPs a more attractive and feasible option for a wider array of employers."  MORE >>

"[These] frequently asked questions provide a practical overview of how cash balance plans work, how they compare to other retirement arrangements, and what key design, compliance, funding, and distribution considerations may apply."  MORE >>

"When presented with a proposed plan design, clients and advisors ... may feel an investment strategy to achieve maximum investment returns is appropriate and wish to have the interest crediting rate accordingly tied to a market rate of return. However, in the small plan market setting, tying the interest crediting rate to a market rate of return may have more risks than benefits."  MORE >>

"By doing nothing more than signing termination amendments, JJDD has created several problems. Mr. Icicle is particularly alarmed that they did not amend the cash balance plan to freeze benefits or tell participants about the termination, which means benefits have been accruing to plan participants all this time.... [W]hile the 401(k) plan does not suffer from the benefit accrual problem (and there was no obligation to provide participant notice), it has issues of its own.... And, not incidentally, no Forms 5500 had been filed for the two plans since they were 'terminated.' "  MORE >>

"[The authors] explore the cost and benefit tradeoffs associated with pension unfreezing using a model calibrated to market data within a stochastic framework.... [T]he extent to which restarting DB pensions affects a firm's total pension cost depends on factors such as pension surplus magnitude, employee salaries, firm financial stability, and [PBGC] premiums. In particular, with a high funding surplus and elevated employee salaries, unfreezing a CB plan can yield greater cost efficiency for companies than pension risk transfer, especially in a high interest rate environment."  MORE >>

"Though traditional 401(k) and 403(b) plans can be effective, their contribution limits often make them less attractive to high-income partners and executives, who are often searching for ways to save more and reduce corporate taxes. Cash Balance plans, on the other hand, offer an accelerated savings vehicle that allows for increased contributions and significant tax advantages. [This article explores] how Cash Balance plans can support executive retention and reduce individual and corporate taxes in 2026."  MORE >>

11 pages. "Cash Balance plans currently outnumber traditional DB plans by nearly 2 to 1. Between 2015 and 2024, the number of Cash Balance plans increased by nearly 70%, while the number of traditional DB plans decreased by more than 50%.... The healthcare sector leads businesses in the number of Cash Balance plans ... Out of all new Cash Balance plans implemented with over 100 participants since 2018, the market-based interest crediting rate is the most common plan design structure."  MORE >>

"When you focus on retirement income (rather than how big the account balance is), it turns out that the most stable DB plan design is one where all those risks are (as in a DC plan) held by the same person: a market-based cash balance plan (MBCB).... [I]nflation, interest rates, and asset values are all correlated: more inflation means higher interest rates; higher interest rates mean (generally) lower asset values; and higher interest rates mean lower annuity conversion costs. The MBCB plan, which tracks these market effects in the same way a DC plan does, reflects all of that, providing more 'stability of income.' "  MORE >>

"As a CPA advising high-income business owners, you routinely help clients maximize their 401(k) plans. But many still leave substantial tax savings on the table. Adding a cash balance plan can allow substantial additional tax-deductible contributions for owners, especially those nearing retirement age, dramatically accelerating wealth accumulation while reducing current-year taxable income."  MORE >>

"A Market-Based Cash Balance is a Cash Balance plan that uses a variable-rate interest credit to grow the account. Market-Based features are increasingly popular with sponsors because they align the growth of the plan assets with the interest credit, minimizing risk and volatility for plan sponsors.... Cash balance plans offer employees a more flexible and accelerated path to retirement readiness while plan sponsors benefit from significant tax advantages, predictable costs, and reduced risk."  MORE >>

"[FASB] approved the recommendation of its Emerging Issues Task Force earlier this month that benefits for market-based cash balance plans, which are legally classified as defined benefit plans, be valued by setting the discount rate equal to the assumed interest crediting rate.... [T]he proposed new accounting calculation would make it simpler and more sensible for plan sponsors to estimate their market-based cash balance pension obligations."  MORE >>

"[T]he numerator of the EBAR ... is the benefit projected to retirement age divided by current year compensation. ... [T]he compensation amount in the denominator should logically be projected as well with a salary scale which would make sense mathematically but would also lower the EBARs for younger participants with more years to go to retirement thus requiring them to get larger contributions to raise their EBARs and pass testing, something the law writers and interpreters of 401(a)(4) did not seem to want."  MORE >>

"Projecting the growth of benefits based on one rate and discounting them based on another rate creates a wild fluctuation in the liability for those benefits ... The FASB Emerging Issues Task Force (EITF) recommended that benefits that meet the strict definition of a Market-Based Cash Balance plan should be valued by setting the discount rate to be equal to the assumed interest crediting rate. This simple-sounding fix effectively eliminates the issue and allows benefits to be valued at the account balance with appropriate adjustments for specific, and usually minor, benefit provisions[.]"  MORE >>

"[FASB] will measure the benefit obligation for in-scope plans under the existing defined benefit accounting model by setting the discount rate equal to the assumed interest crediting rate. FASB also decided to clarify that an entity would be required to use the assumed interest crediting rate as the discount rate in all circumstances for in-scope plans.... FASB has decided to [1] direct the staff to draft a proposed accounting standards update for vote by written ballot and [2] grant a 60-day comment period concerning the proposed update."  MORE >>

"The plans impacted by this change are ... DB pension plans where participant benefits are communicated as an account balance, which include pay credits and interest credits based on one of the following investable market returns: [1] The return on plans' assets; [2] The return on a subset of the plans' assets that approximates the associated cash balance liabilities; [3] The return on a regulated investment company."  MORE >>

Jan. 14 meeting. "The Board will consider whether to add a project to its technical agenda to address the discount rate used to measure the projected benefit obligation under Topic 715, Compensation -- Retirement Benefits, for market-return cash balance plans. The Emerging Issues Task Force (EITF) discussed this issue and developed recommendations."  MORE >>

"Retroactive adoption of cash balance plans is a powerful tax planning tool for business owners aiming to reduce taxable income while accelerating retirement savings. CPAs play a crucial role in identifying potential candidates for this type of plan and coordinating with plan administrators."  MORE >>