Cash Balance Plan
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Let's talk about what is important to you ...
"Superior Planning Brings the Future into the Present."… Mike Vance
Please contact me for a 30-minute free consultation/personal financial advice via Zoom.
I proudly serve clients throughout California and the nation.
Regency Financial Group
2855 Piedmont Ave.
La Crescenta, CA 91214
Tel: (818) 330 9610
Fax: (818) 369 7246
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I don't sell; I serve - Vahick A. Yedgarian
Cash Balance Plan – A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account. Cash balance plans are more likely than traditional defined benefit plans to make lump-sum distributions.
Determinations – Cash Balance Plan Design Issues | Internal Revenue Service (irs.gov)
Defined Benefit Plan, also known as a traditional pension plan, promises the participant a specified monthly benefit at retirement. Often, the benefit is based on factors such as the participant’s salary, age and the number of years he or she worked for the employer. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service.
Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute (and therefore deduct) more each year than in defined contribution plans. However, defined benefit plans are often more complex and, thus, more costly to establish and maintain than other types of plans.
Defined Benefit Plan | Internal Revenue Service (irs.gov)
If you establish a defined benefit plan, you:
- Can have other retirement plans
- Can be a business of any size
- Need to annually file a Form 5500 with a Schedule B
- Have an enrolled actuary determine the funding levels and sign the Schedule B
- Can’t retroactively decrease benefits
Pros and cons
- Substantial benefits can be provided and accrued within a short time – even with early retirement
- Employers can contribute (and deduct) more than under other retirement plans
- Plan provides a predictable benefit
- Vesting can follow a variety of schedules from immediate to spread out over seven years
- Benefits are not dependent on asset returns
- Plan can be used to promote certain business strategies by offering subsidized early retirement benefits
- Most costly type of plan
- Most administratively complex plan
- An excise tax applies if the minimum contribution requirement is not satisfied
- An excise tax applies if excess contributions are made to the plan
Who contributes
Generally, the employer makes most contributions. Sometimes, employee contributions are required or voluntary contributions may be permitted.
Contribution and benefit limits
Benefits provided under the plan are limited. Deduction limit is any amount up to the plan’s unfunded current liability (see an enrolled actuary for further details).
Filing requirements
Annual filing of Form 5500 is required. An enrolled actuary must sign the Schedule B of Form 5500.
Participant loans
A defined benefit plan may permit participant loans.
In-service withdrawals
Generally, a defined benefit plan may not make in-service distributions to a participant before age 62.
Additional resources
Source: irs.gov
To find out more about Cash Balance Plan services offered through RFG, contact us at (818) 330-9610 or email This email address is being protected from spambots. You need JavaScript enabled to view it.
Money Purchase Plan
Let's talk about what is important to you ...
"Superior Planning Brings the Future into the Present."… Mike Vance
Please contact me for a 30-minute free consultation/personal financial advice via Zoom.
I proudly serve clients throughout California and the nation.
Regency Financial Group
2855 Piedmont Ave.
La Crescenta, CA 91214
Tel: (818) 330 9610
Fax: (818) 369 7246
This email address is being protected from spambots. You need JavaScript enabled to view it.
I don't sell; I serve - Vahick A. Yedgarian
Money purchase plans have required contributions. The employer is required to make a contribution to the plan each year for the plan participants.
https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-money-purchase-plan
With a money purchase plan, the plan states the contribution percentage that is required. For example, let’s say that your money purchase plan has a contribution of 5% of each eligible employee’s pay. You, as the employer, need to make a contribution of 5% of each eligible employee’s pay to their separate account. A participant’s benefit is based on the amount of contributions to their account and the gains or losses associated with the account at the time of retirement.
That type of arrangement is different than a profit-sharing plan. With the profit-sharing plan, you, the employer, can decide that you’ll contribute a certain amount, say $10,000. Then, depending on the plan’s contribution formula, you allocate that $10,000 to the separate accounts of the eligible employees. Also, in past years, money purchase plans had higher deductible limits than profit-sharing plans. This is no longer the case.
If you establish a money purchase plan, you:
- Can have other retirement plans.
- Can be a business of any size.
- Need to annually file a Form 5500.
You can make a money purchase plan as simple or as complex as you want. Pre-approved money purchase plans are available to cut down on administrative headaches.
Pros and cons
- Possible to grow larger account balances than under some other arrangements.
- Administrative costs may be higher than under more basic arrangements.
- Need to test that benefits do not discriminate in favor of the highly compensated employees.
- An excise tax applies if the minimum contribution requirement is not satisfied.
Who contributes
Employer and/or employee contributions.
Contribution limits
The lesser of 25% of compensation or $54,000 (for 2017; $53,000 for 2015 and 2016, subject to cost-of-living adjustments).
Filing requirement
Annual filing of Form 5500 is required.
Participant loans
Permitted.
In-service withdrawals
Not permitted.
Source: irs.gov
To find out more about Money Purchase Plan services offered through RFG, contact us at (818) 330-9610 or email This email address is being protected from spambots. You need JavaScript enabled to view it.
