Number of Cash Balance Plans Surged 32% in 2013

They now comprise 28% of all defined benefit plans.

The number of cash balance plans grew 32% in 2013 to reach 12,721, the most recent year for which Internal Revenue Service (IRS) reporting data is available, according to a report from Kravitz. By comparison, the number of 401(k) plans grew by 3% in 2013. Today, cash balance plans make up 28% of all defined benefit plans, up from just 2.9% in 2001.

Most cash balance plans (89%) are offered in companies with fewer than 100 employees, according to “2015 National Cash Balance Research Report.” Companies contributed $35.8 billion to cash balance plans in 2013, bringing their total assets to $952 billion. Employers contribute an average of 6.3% of an employee’s pay when they offer both a cash balance and 401(k) plan. By comparison, they contribute only an average of 2.8% of pay when they offer a 401(k) plan alone.

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The IRS’ decision to allow broader investment options in cash balance plans in 2010 are making the vehicles even more popular, Kravitz said. Nearly one quarter, 23%, of all new cash balance plans in 2013 were opened in New York and California.

NEXT: What’s driving the popularity

As to what is driving the popularity of cash balance plans, Kravitz said it’s the ability for employers to deduct contributions to employee retirement accounts from their taxes. Also, since cash balance plans combine the high contribution limits of a defined benefit plan with the flexibility and portability of 401(k) plans, they have hybrid appeal. Furthermore, with so many news articles about how Baby Boomers will be unprepared for retirement, older business owners want to help their employees accelerate their retirement savings.

Today, some cash balance plans have websites, making the vehicles easier for participants to understand and appreciate. The plans allow for more consistent contributions to employees, rather than age-based contributions. Account balances can be rolled over to an individual retirement account (IRA), which is important since many Americans change jobs frequently. As with any IRS-qualified retirement plan, cash balance assets are protected in the event of a lawsuit or bankruptcy. Finally, cash balance plans are an attractive recruitment offering.

Cash balance plans are most commonly found in health care, technical, legal and financial sectors. “With many CRP and financial advisory organizations educating clients about cash balance plans, we expect even greater diversification of business types adding these plans,” Kravitz said. “Thanks to steadily increasing demand for creative plan designs combining cash balance, 401(k) and profit sharing, top retirement plan consultants are finding new opportunities to develop a niche specialty with a competitive edge.”

Kravtiz’s full report can be downloaded here.

Salisbury Stepping Down as CEO of EBRI

Dallas Salisbury will leave EBRI after 37 years as CEO of the nonpartisan, nonprofit research institute.

The Employee Benefit Research Institute (EBRI) opened for business on December 4, 1978. Its president and chief executive, Dallas Salisbury, became the face of the world of workplace retirement.

Salisbury, who before coming to EBRI held positions with the Washington State Legislature, the Department of Justice, the Employee Benefits Security Administration of the Department of Labor, and the Pension Benefit Guaranty Corporation (PBGC), was expert at helping the media and regulators understand the nuances of the American retirement system: both the importance and the fragility of the framework that supports how individuals retire. In concert with a wealth of data that EBRI accumulates from more than 35,000 plans, he provided invaluable insights about trends in defined contribution and defined benefit plans.

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A keen forecaster of market forces that affect benefits, Salisbury predicted in 2003 a rapid decline in retiree medical benefits and a rise in lump-sum payouts. Financial literacy, he said, would continue to be a real problem for American investors.

While intensely passionate about retirement savings and security, Salisbury never allowed personal passion to interfere with data-driven facts about the country’s retirement system. He pointed out weaknesses in the defined benefit (DB) system of the private sector, for example, stemming from the American worker’s tendency to leave an employer before accumulating sufficient service credits. 

His assignments have included Social Security Administration appointee to the Outside Scholar Panels for the SSA’s Financial Literacy Research Consortium, the SEC Investor Advisory Committee, the Board of Advisors to the Comptroller General of the United States, and the Board of Directors of the FINRA Investor Education Foundation, the Board of Directors of National Academy of Human Resources and the NAHR Foundation, the Secretary of Labor’s ERISA Advisory Council, the presidentially appointed PBGC Advisory Committee, the Board of Directors of the Society for Human Resources Management, the U.S. Advisory Panel on Medicare Education, the Board of Directors of the National Academy of Social Insurance, member of the Bipartisan Policy Center Commission on Retirement Security and Personal Savings, and numerous other commissions and advisory groups.

Salisbury will become president emeritus and resident fellow on January 1.

NEXT: Harry Conaway will head EBRI in January.

EBRI has named Harry Conaway, a senior partner with Mercer, new CEO. His appointment becomes effective January 1.

Conaway’s appointment represents EBRI’s commitment to its unique role as a “fact tank” for the public and decisionmakers, the organization said in a statement. Conaway has served on the EBRI Board of Trustees for more than a decade, as well as on the EBRI executive committee. Conaway has been with Mercer since 1989.

Around the time of the 40th anniversary of the Employee Retirement Income Security Act (ERISA), Conaway stated that the federal framework for retirement benefits was one of the law’s positive aspects.

“With Mercer, Conaway has built and managed a large, highly regarded, and financially successful human resources and employee benefits legislative and regulatory interpretation, research and communications group and will hit the ground running,” Pamela French, EBRI board chair, said in a statement.

Conaway cited the research institute’s reputation, databases and research team. “EBRI has the capacity to shatter myths and preconceptions,” he said. “As the new CEO, I'm proud that I will have the opportunity to listen to and work with EBRI’s members and partners in the benefits community, and to lead the nation’s premier employee benefits research organization.”

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