Cash Balance Plans Show Decade-Long Growth

“2013 National Cash Balance Research Report” was released by Kravitz Inc., a provider of corporate retirement plans in Los Angeles. In addition to the increase in growth of cash balance plans, the report noted that this growth continues to surpass all other sectors of the retirement plan market, including 401(k) plans, which declined 3% in the same period. (See “Cash Balance Plans Could Overtake 401(k)s.”)

Also known as “hybrid” plans, cash balance plans combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a defined contribution 401(k) plan.

“With 401(k) contributions limited to $17,500 a year and tax rates rising, cash balance plans offer welcome relief for business owners who need to increase tax-deferred retirement savings,” said Dan Kravitz, president of Kravitz. “Many owners can dramatically accelerate their savings rate, while offering an enhanced employee benefit package that helps attract and retain top talent.”

The report found that there were 7,926 cash balance plans active in 2011 (the most recent year for which complete reporting data from the Internal Revenue Service is available), up from 1,337 in 2001. There are 11.1 million participants in cash balance plans nationwide, with $724 billion in assets. Cash balance plans now make up 20% of all defined benefit plans, up from 2.9% in 2001.

Key findings of the report include:

• Companies more than double contributions to employee retirement savings when adding a cash balance plan. The average employer contribution to staff retirement accounts is 6.2% of pay in companies with both cash balance and 401(k) plans, compared with 2.5% of pay in firms with 401(k) alone;
• Small businesses continue to drive cash balance growth, with 86% of cash balance plans in place at firms with fewer than 100 employees;
• Top 10 lists highlight the strategic importance of cash balance plans at Fortune 100 companies and professional service firms. Many leading national law firms and medical groups offer cash balance plans, along with a number of Fortune 100 companies; and
• The 30-year Treasury rate remains the most popular Interest Crediting Rate (ICR). While the 2010 cash balance regulations introduced a wider range of allowable ICR options, most plan sponsors have stayed with the 30-year Treasury safe harbor rate to avoid unexpected cost issues with the new ICR options.

A copy of the report can be downloaded here.