Steve Sansone is on a mission, and it involves cash balance plans.
As the national sales consultant for cash balance provider Kravitz Inc., recently acquired by Ascensus, Sansone took attendees of Excel 401(K): The Advisors’ Conference in Las Vegas through the benefits—and nuances—of the fast-growing offering.
He began by noting cash balance plans are “soaring.”
Kravitz’s research shows there’s over $1 trillion in cash balance assets with nearly $30 billion in ongoing contributions, up 17 percent year-over-year, which is a startling figure when compared to the mere 3 percent growth rate of 401k plans, he claimed.
They represent over a third of defined benefit plans, and Sansone said it’s expected to approach 50 percent in the next few years, as more defined benefit plans are terminated and cash balance plans added.
The sudden rise in cash balance plans can be attributed to three major events, he explained.
First, after years of being placed into the “penalty box” by the IRS due to legal challenges over age discrimination, the Pension Protection Act of 2006 legitimized the cash balance plan design.
Second, the American Taxpayers Relief Act of 2012 ushered in a “one-two punch of higher tax rates, as well as the phasing out of deductions for high wage earners, ultimately creating a significant amount of financial pain.”
Third, a consistently improving economy generated broad-based profitability for many different industries, including specialists in the medical profession, who are currently the largest adopters.
Sansone said advisors should be educated on cash balance plans because they are excellent marketing tools for more mature 401k/profit sharing plan opportunities, which he added are “bolted on” to existing plans.
By presenting an “innovative tax planning solution that will save business owners potentially thousands in taxes,” while at the same time helping them to build an exit strategy, the advisor dramatically increases their relevance and acts as a competitive differentiator.
“Once advisors demonstrate their knowledge of the entire retirement landscape and address two major pain points high wage earners are feeling—high taxes and the need for an exit strategy—they are in prime position to deliver their 401k value proposition,” Sansone concluded. “After they present the cash balance plan, it’s the easiest 401k presentation the advisor will ever have.”