In today’s competitive world, employers are looking for effective benefits strategies to attract and retain top employees. A cash balance plan is one such approach. These are a type of defined benefit plan. They are also known as hybrid plans as they offer high contribution limits of defined benefit plans and some defined contribution plan features, too. Unlike 401(k), business owners contribute to an account. Employers are adopting this plan as it has attractive provisions like assets protected from lawsuits and personal retirement savings, making it simple and easy to understand.
Lets now try to be more clear about Boca Raton cash balance plans:
How does the plan work?
Under this plan, a “hypothetical account” is established for each employee. This hypothetical account balance grows annually based on a Pay Credit (fixed dollar amount or a % of pay) plus a predetermined Interest Credit. This account can be paid out as a lump-sum amount to the employee upon death, disability, termination, or retirement. These accounts are valued using interest rates prescribed by the IRS.
Better than traditional pension plans
Unlike traditional plans, the benefits of cash balance plans cannot be renounced in case companies change or freeze a pension plan. Most of the funds in such plans are federally insured through the Pension Benefit Guaranty Corporation, a government agency. Also, these plans are more favorable to younger employees as the amount contributed early in an employee’s career will grow at a compounding rate.
In a cash balance plan, the amount that an employee expects in retirement is “defined”. Here the employer bears the risk of any fluctuation in the market. Due to their defined benefit status, such plans are insured and offer the option of a lifetime annuity.
Benefits of the plan
Business owners get large corporate tax deductions as well as accelerate retirement savings. The assets are protected from creditors under the Employee Retirement Income Security Act of 1974. The assets are usually invested in conservative investments that are not affected by market fluctuations.
Choosing the right retirement and benefit plans for your company can be quite tasking. Cash balance plans are a great way to attract and retain top employees. The tax savings realized from cash balance plans can help fund other plans of the company. This plan also gives you a choice between analyzing your benefits or receiving them in a lump sum. The choice is completely yours. The cash balance plan is indeed a great retirement plan for both employers and employees.