They were popular, then not, then popular again, and it’s reflected in the numbers.
The number of new cash balance plans increased 17 percent compared with just 3 percent growth in new 401(k) plans, according to cash balance plan provider Kravitz, surpassing industry projections of 12 percent to 15 percent growth.
Citing available Form 5500 filing data, Kravitz added that small businesses continue to drive cash balance growth: 92 percent of plans are in place at firms with fewer than 100 employees.
In an apparent sign of confidence in cash balance growth in the wake of the Pension Protection Act’s passage a decade ago, as well as its future performance potential, mega-recordkeeper and retirement plan provider Ascensus announced that it had acquired Kravitz in June as part of a broader foray into the space.
“Cash balance plans are experiencing over 20 percent growth per year, while the 401ks are a mature market, growing at about 2 percent per year,” Kravitz president Dan Kravitz said at the time (and just a bit off). “It’s a good complement with the 401k for professional services firms looking for tax and retirement savings. Cash balance plans are a great way to do it.”
Other findings from Kravitz include:
- Market volatility and uncertainty over tax rates have not slowed growth: Despite frequent market volatility and political uncertainty over issues such as tax reform and retirement plan regulations, adoption of new plans has continued to accelerate. Between 2010 and 2015 alone, we saw a 152 percent increase in new plans nationwide.
- Increasing diversity of companies adopting plans: While medical/dental groups and law firms still make up about 40 percent of the market, cash balance plans are becoming increasingly popular across the business world, from the technology sector to retail and manufacturing.
- Cash balance plans now make up over 34 percent of all defined benefit plans, up from 2.9 percent in 2001: Their rising popularity has coincided with a steady decline in traditional defined benefit plans due to ongoing challenges with risk and cost volatility.
- IRS regulations allowing broader Cash Balance investment options have accelerated plan growth: The ‘Actual Rate of Return’ option and other new investment choices approved in the 2010 and 2014 Cash Balance regulations made plans more flexible for employers and removed certain funding issues. The number of large plans using Actual Rate of Return has increased almost 20 percent.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
