Cash Balance Plan FAQs

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Cash Balance FAQs

What is the maximum contribution I can make under a Cash Balance Plan?

The maximum contribution is not the same amount for each participant. It depends on several factors such as age and salary history.  As an example, a 50-year-old could make a contribution of up to $185,000 and potentially more depending on salary history. We can offer a free determination of the amount you can potentially contribute.

Can contribution amounts change each year and are they required?

Contributions under a defined benefit plan are generally required.  There are exceptions for plans that are over funded, or have chosen to temporarily “limit” ongoing benefits.  It is important to work closely with your TPA in order to monitor and control annual contributions. 

When does the required contribution have to be made?

  The contribution must be made by the earlier of:

a) The due date of your tax return that reflects the tax deduction (including any extension).

b) 8 1/2 months after the plan year end (e.g., September 15th if a calendar plan)

Is there anything else I can do in ADDITION to the Cash Balance Plan to get more tax deductions and additional retirement contributions?

Yes. The Pension Protection Act of 2006 added the ability to also adopt a 401k/Profit Sharing Plan and contribute up to 6% of total eligible payroll to a profit-sharing plan along with the 401k deferral maximum. 

Which employees must be covered under the plan and does that include leased employees?

Generally, all common-law employees and leased employees who have met the plan’s eligibility requirements must be considered for plan participation.  In some cases, there is the possibility of excluding some employees by job title or other reasonable classification.

What is the longest eligibility waiting period you can use?

Usually one (1) Year of Service is the longest eligibility waiting period.  A Year of Service is generally defined as a twelve-month period in which the employee works 1000 hours (equates to about 20 hrs. per week).  A maximum age of 21 can also be used as a requirement.

What are the available vesting schedules?

Cash Balance regulations require that all participants be vested at least by the end of 3 years (vesting years can start with the initial start-date of the plan). Therefore, the most common vesting schedule is as follows –

3-year Cliff Schedule (most common schedule for Cash Balance Plans)

0-2 Years = 0% vested

3 + Years = 100% vested

What type of investments are allowed under a Cash Balance Plan?

Generally, most arm’s-length third party investments available to you on a personal level are also available for plan investments.  Although some illiquid assets, like art or real estate, may require appraisals annually pretty broad in this area.

Do I have to be incorporated to sponsor a retirement plan and claim deductions for contributions?

No.  A plan can be sponsored by any type of business entity (including most non-profit organizations) whether or not incorporated.  Under any of these types of entities the contribution that is calculated within IRS prescribed limitations is 100% deductible.

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