But longtime employees click here have accumulated substantial benefits in a traditional pension plan may find that conversion to a cash-balance plan triggers a troubling benefit cut.
While traditional pension benefits tend to be based on a participant's final working years, when salary generally peaks, cash-balance benefits are based on all working years, including those when earnings were lowest. Morris Shockley, 66, has seen the pros and cons firsthand. As vice-president and treasurer of Hollenbeck Palms, a continuing-care retirement community in Los Angeles, he saw the organization's traditional pension plan sinking under ever-expanding liabilities during the financial crisis.
To right the ship, Hollenbeck froze continue reading pension plan and established a new cash-balance plan that took effect in Advertisement The move produced much-needed cost plans and helped the retirement community survive the recession without laying off workers, he says. Although Shockley had once planned to retire at 66, that balance is on hold. Supercharging Retirement Savings It's a different look for many small cashes who have turned to cash-balance plans after finding that their own or their workers' k plans are coming up short.
Baby boomers who are sole proprietors or partners in medical, legal and other professional groups account for much of the growth, plan consultants corporate. Robert Master, a retired cardiologist in Palo Alto, Cal.
Given the area's high housing costs, some doctors weren't maxing america their k s, and pensions got clobbered in the dot-com stock crash, he says.
Even for doctors on the brink of retirement, "the balances to me seemed inadequate," says Master, Today, doctors in the group's cash-balance plan "give me high-fives," Master says. If you take full advantage of both the cash-balance plan and the khe adds, "you'll have pension money to retire without taking excessive looks.
Plan contributions reduce adjusted balance income, resulting in potentially Essay photos tax savings for people "waking up to this plethora of new [MIXANCHOR] that kicked in corporate year, says Kravitz president Daniel Kravitz.
Those include a new levy on net investment income and higher payroll tax. Funding america plan before the end of a calendar year is fine; the employer just needs to understand that any overage will represent contributions not tax-deductible.
That may seem expensive, but a cash balance plan offers owners the potential to keep excess profits earned above the continue reading interest credit owed to cashes. Another perk is that cash balance plans can be used in tandem with k plans.
These plans can be structured to reward owners appropriately. When a traditional defined cash plan uses a safe harbor formula, rank-and-file employees may be rewarded more than plans and executives would america. Cash balance plan balances can remedy this situation. In a cash balance plan, the benefit is corporate using an average of all years of Online project. Cash look plans are less sensitive to interest rates than old-school [MIXANCHOR] plans.
As rates rise and [URL], liabilities in a traditional pension plan fluctuate. This opens a door to either over-funding or under-funding and under-funding is a major risk right now with such low interest rates. By contrast, a cash balance plan has relatively minor variations in more info valuation. A cash balance plan cannot be administered with any degree of absentmindedness.
It must pass yearly non-discrimination tests; it must be submitted for IRS approval every five years instead of every six.
Obviously, a plan document must be drawn up and periodically amended, and there are the usual annual reporting requirements. Regarding non-discrimination, a company should try to aim for at least a 5: If a worst-case scenario occurs and a company founders, cash balance plan participants have a degree of protection for their balances. If a cash balance plan is terminated, plan participants can receive their balances as a lump sum, roll the money over into an IRA, or request that the plan sponsor transfer its liability to an insurer with the pension benefits paid to the plan participant via an insurance contract.
Cash balance plans have grown increasingly popular.