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Regency Financial Group
2855 Piedmont Ave.
La Crescenta, CA 91214
Tel: (818) 330 9610
Fax: (818) 369 7246
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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.
