Cash balance plans, those quirky—and increasingly popular—defined benefit/401(k) hybrids, saw a 19 percent annual increase and a rise in assets to $1 trillion.
Retirement plan administrator Kravitz released the 2016 National Cash Balance Research Report, which finds cash balance plans becoming “an increasingly important sector of the retirement market and traditional defined benefit plans declining.”
Cash Balance plans now make up 29 percent of all defined benefit plans, up from 2.9 percent in 2001.
The report further states there were 15,178 cash balance plans active in 2014, the most recent year for which complete IRS reporting data is available. This 19 percent year-over-year increase surpassed industry projections and “significantly outpaced” the 401(k) market, which showed just a 2 percent increase in new plans, despite positive economic trends and job growth.
“With 401(k) contributions limited to $18,000 and tax rates increasing, Cash Balance plans are an increasingly popular choice for many employers,” Dan Kravitz, President of Kravitz, said in a statement. “They can typically double or even triple their tax-deferred savings while enhancing retirement benefits for employees, a key factor for attracting top talent in a competitive hiring market.”
Cash Balance plans combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a 401(k).
Other key findings from the 2016 National Cash Balance Research Report include:
- Small businesses drive Cash Balance growth:91 percent of cash balance Plans are in place at firms with fewer than 100 employees.
- Companies more than double contributions to employee retirement savings when adding a cash balance plan:the average employer contribution to staff retirement accounts is 6.5 percent of pay in companies with both cash balance and 401(k) plans, versus 3.1 percent of pay in firms with 401(k) alone.
- Recent IRS regulations allowing broader Cash Balance investment options are driving rapid growth:the ‘Actual Rate of Return’ option and other new investment choices approved in the 2010 and 2014 cash balance regulations are making cash balance more flexible and more appealing to employers by removing many funding issues.
These and other highlights of the 2016 National Cash Balance Research Report will be discussed in an upcoming Cash Balance Outlook 2016 webcast led by Dan Kravitz on Tuesday, August 2 at 10 a.m. Pacific. Registration is free and open to anyone interested in learning more about Cash Balance Plans.
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.
