Data and Research

National Cash Balance Research Denotes Impressive Growth

Kravitz released the 2016 National Cash Balance Research Report, showing a 19% increase in the number of new cash balance retirement plans and a rise in assets to $1 trillion. 

By John Manganaro editors@strategic-i.com | July 07, 2016
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New research released by retirement plan services firm Kravitz shows strong growth in the cash balance plan market, which just topped $1 trillion in total invested assets.

“The milestone caps a decade-long trend of double-digit annual growth, with cash balance plans becoming an increasingly important sector of the retirement market and traditional defined benefit plans declining,” the firm explains. “Cash Balance plans now make up 29% of all defined benefit plans, up from 2.9% in 2001.”

According to Kravitz, there were 15,178 cash balance plans active in 2014, the most recent year for which complete Internal Revenue Service (IRS) reporting data is available. The 19% year-over-year increase surpassed already-optimistic industry projections and significantly outpaced the 401(k) market which showed just a 2% increase in new plans,” researchers note, “despite positive economic trends and job growth.”

“With 401(k) contributions limited to $18,000 and tax rates increasing, cash balance plans are an increasingly popular choice for many employers,” says Dan Kravitz, president. “They can typically double or even triple their tax-deferred savings while enhancing retirement benefits for employees, a key factor for attracting top talent in a competitive hiring market.”

The research finds the “hybrid” nature of cash balance plans is appealing for both employers and employees, as such plans “combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a 401(k).”

Interestingly, small businesses seem to be driving much of the new cash balance plan growth. Fully 91% of cash balance plans are in place at firms that currently have less than 100 employers, for example, with many of these employers citing favorable tax implications. From the employees’ perspective, these companies have more than twice the level of contributions to staff retirement savings when a cash balance plan is present. (The average employer contribution to staff retirement accounts is 6.5% of pay in companies with both cash balance and 401(k) plans, versus 3.1% of pay in firms with 401(k) alone.)

Also fueling the growth, according to Kravitz, are the recent IRS regulations allowing broader cash balance investment options. The “Actual Rate of Return” option and other new investment choices approved in the 2010 and 2014 Cash Balance regulations have been particularly influential, researchers explain, “making cash balance more flexible and more appealing to employers by removing many funding issues.” More than 8,000 new cash balance plans have been created in the wake of these regulations.

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