In our final post, let’s look at some other key factors to consider when thinking about adopting a Cash Balance Plan:
1) Profit Sharing Plans on their own allow flexibility for contributions to vary from year to year depending on profitability. Cash Balance Plans require amendment in order to accommodate the need for different levels of contributions. There is a restriction on the frequency of amendments unless a valid economic reason exists.
2) If profits are not expected to support its Cash Balance Plan contribution, then the plan can be amended to accommodate either a lower level of contribution or no contribution at all.
3) Any amendment reducing or freezing contributions must be adopted 30 days before employees complete 1,000 hours. Amendments for increases to contributions must be adopted within two-and-a-half months following the end of a plan year.
4) Qualified plans’ assets are protected from creditors in the event of bankruptcy. The anti-alienation provision of ERISA states that “each pension plan shall provide that benefits provided under the plan may not be assigned or alienated,” which means that the assets in a qualified plan are not available to creditors. Since professionals and business owners often consider asset protection a premium, it is very advantageous to accrue retirement savings in an asset-protected vehicle, like a qualified plan. These plans provide a means for business owners and partners to move assets from their businesses to a pension plan. Once in the qualified plan, these assets are then protected from creditors as a “nest egg” for retirement or to pass on to heirs.
As you can see from our series, Cash Balance Defined Benefit Plans can enhance the effectiveness of your retirement program, but only if they are designed thoughtfully and using state-of-the-art technology and processes. They must also include effective communication and education for your employees.
If you are considering a Cash Balance Defined Benefit Plan, The Robin Weingast & Associates team of enrolled actuaries and certified pension and employee benefit consultants are essential partners who can help you develop and get the most out of a Cash Balance Defined Benefit Plan as part of your retirement program. Contact us today for more information.