Make the Most of Your Cash Balance Plan: Tips and Strategies

Make the Most of Your Cash Balance Plan: Tips and Strategies

March 27, 2024

Most business owners may already be familiar with the basics of what cash balance plans are all about. But what if they want to know exactly how to make the most of their cash balance plan, beyond just the basics?

This is where they’ll rely on advice from a trusted advisor like yourself. Whether they are contemplating a new plan or have sponsored one for years, nearly every business owner can benefit from a more comprehensive approach to their cash balance plan. 

So, let’s dig deeper into the specific strategies and tips that can help business owners customize their plans, optimize taxes, and fully capitalize on their cash balance plans. 

Make the Most of Higher Limits

One of the major perks of cash balance plans is that they have higher contribution limits compared to traditional pension plans and 401(k) plans. This is a big benefit for business owners who have extra earnings to put away for retirement.

To make the most of these higher limits, you’ll want to consider two strategies:

1. Maximize Contributions

The key to accelerated retirement savings is to maximize contributions whenever possible. But because these plans are so flexible, it can be confusing to figure out exactly how to do that.

Since the IRS puts limits on the ultimate benefit to be paid at retirement, there is technically no annual contribution limit for a cash balance plan. Instead, the maximum contribution limit depends on various factors, including the individual’s age, income, and the defined benefit formula used in the plan.

Consulting with a financial advisor (such as yourself) or a retirement plan specialist can provide more accurate information regarding the maximum allowable contributions to a cash balance plan based on specific circumstances and IRS regulations.

2. Double Up on the Tax Advantages

With cash balance plans, both the business and the business owner benefit from significant tax benefits. That’s because contributions to a cash balance plan are considered a business expense and therefore fully tax-deductible. As these types of deductions become increasingly rare, this is an opportunity your clients won’t want to miss out on.

Plus, cash balance plans offer tax-deferred growth for contributions and investment earnings, helping plan assets grow faster than they would in taxable accounts. This is a double-win for business owners and highly compensated employees looking for larger tax deductions and a boost in retirement savings. 

Customize Your Investment Strategy

Another way to make the most of a cash balance plan is to develop a well-structured investment strategy that aligns with the individual’s risk tolerance and financial objectives. It’s a crucial step that helps enhance growth and promote stability within the plan. 

Attract Top-Tier Talent

It’s no surprise that it’s getting increasingly difficult to attract and retain key employees. According to a recent LinkedIn and CensusWide report, 61% of people considered leaving their jobs in 2023. 

To attract and retain top talent, your clients should consider adding a cash balance plan to their enhanced retirement benefits package as a powerful employment incentive. Many plan sponsors consider it an important strategy to gain a competitive edge in recruitment and retention.

Defend Against Creditors

A cash balance plan can be set up under the Employee Retirement Income Security Act (ERISA), which means that the retirement plan may be shielded from future creditor claims. So, you can make the most of your cash balance plan by considering it an important risk-management tool. 

Seek Personalized Advice

It’s crucial that business owners receive guidance from financial advisors or specialists experienced in cash balance plans to tailor the plan to their specific needs and financial goals. This way, they can feel confident they are receiving accurate and comprehensive advice while making the most of their plan. 

That’s where we at FinancialFocus Retirement Plan Services can help. Our experienced team partners with financial professionals to design and implement pension plans to best support their business clients. Email me today at to see if we’re a good fit.

About Kenny Phan

Kenny Phan is a Managing Partner/Pension Consultant at FinancialFocus Retirement Plan Services. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses around the nation, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.