Welcome to 401(k)ompass, a series of two-minute videos to help you manage your 401(k) more effectively by addressing current issues and challenges.
In this episode, Retirement Plan Advisor Renn Williams explains how cash balance plans work and when they make sense for companies with executives or highly compensated employees who want to save more and reduce their tax burden.
Cash balance plans are a type of defined benefit pension plan that combines features of both traditional pensions and defined contribution plans. They offer significantly higher contribution limits than 401(k) plans, sometimes allowing savings of $100,000 to $200,000 or more per year on a pre-tax basis.
Renn covers the advantages of cash balance plans, including substantial tax savings, as well as important considerations like actuarial costs, administrative expenses and the commitment required to maintain the plan for at least three to five years.
This quick overview explains the key elements of cash balance plans and can help you evaluate whether this approach makes sense for your organization.