Cash Balance Accounts See Growth

Cash balance plans experienced growth, with a 17% increase in the number of new plans compared with a 3% increase in new 401(k) plans, according to research by Kravitz.

There were 17,812 cash balance plans active in 2015, the most recent year for which complete Internal Revenue Service (IRS) reporting data is available. This marks more than a decade of double-digit annual growth in the cash balance plan market, concurrent with the decline of traditional defined benefit plans, the firm notes. Cash balance plans now make up 34% of all defined benefit plans (DB), up from 2.9% in 2001.

In addition, Kravitz found plan sponsors made a record-setting $29.3 billion in contributions to cash balance plans in 2015, with total plan assets rising to $1.1 trillion.

“Cash balance plans offer considerable advantages for employers, including the opportunity to double or triple tax-deferred retirement savings,” says Dan Kravitz, head of Kravitz. “Cash balance plans are also very appealing to employees, and can help companies attract top talent in a tight labor market.”

While medical groups and law firms still make up about half of the cash balance plan market, the firm found cash balance plans are becoming increasingly popular across the business world, from the technology sector to retail and manufacturing.

Moreover, they’re being fueled by the small business sector with 92% of cash balance plans at firms with fewer than 100 employees.

The average employer contribution to staff retirement accounts is 6.6% of pay in companies with both cash balance and 401(k) plans, versus 3.7% of pay in firms with 401(k) alone.

The 2017 National Cash Balance Research Report is here.