Frequently Asked Questions
Cash Balance Plan – FAQ's
What is a Cash Balance Plan?
A cash balance plan is a type of defined benefit plan that allows businesses to significantly increase tax-deductible retirement savings. These plans offer a modern approach to traditional pension plans that reduce the burden on the company and increase flexibility.
How is it different from a 401(k)?
401(k) plans, as defined contribution arrangements, suit a wide range of organizations. Cash Balance Plans, on the other hand, are specialized defined benefit plans designed for select companies seeking greater retirement savings and enhanced tax deferral. CBPS can help you combine both plans strategically—maximizing efficiency and tax advantages while minimizing employer matching obligations. It’s also important to note that Cash Balance Plans place a larger obligation on the part of the employer and have additional filing and actuarial costs.
Who should consider a Cash Balance Plan?
Ideal for business owners, professionals (doctors, lawyers, consultants), or companies seeking large tax deductions and accelerated retirement savings, especially for those age 45+.
How much can I contribute?
Annual contribution limits vary by age and can reach $100,000 to $300,000+, significantly more than traditional 401(k) plans.
Can I combine a Cash Balance Plan with a 401(k)?
Yes. When combined with a 401(k) and profit-sharing plan, you can maximize tax-deferred retirement contributions beyond what either plan allows alone. CBPS can hlep you design and implement a combination strategy that works best for you.
Is the plan portable?
Yes. Upon retirement or separation, the account balance can be rolled over into an IRA.
Are Cash Balance Plans subject to IRS rules?
Yes. These are qualified plans and must meet IRS rules for nondiscrimination, funding, and participation — typically requiring contributions for other eligible employees too.
What are the setup and maintenance requirements?
Cash balance plans require annual actuarial calculations, IRS filings (Form 5500), and ongoing administrative costs. A third-party administrator (TPA) is typically needed.
How long do I need to keep the plan open?
Ideally, at least 3–5 years, to meet IRS expectations and avoid scrutiny for using the plan as a short-term tax shelter.
I’m self-employed with no employees. Can I adopt a Cash Balance Plan?
Absolutely. If you have the cash flow to fund $100K or more and the desire to greatly reduce your current income, a one person Cash Balance Plan could be ideal. Let us create an illustration to show you how much you can save.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Non-Qualified Deferred Compensation (NQDC) Plan – FAQ's
What is a Non-Qualified Deferred Compensation Plan?
An NQDC plan allows select employees (often executives or key employees) to defer a portion of their income to a future date — such as retirement.
How are NQDC plans different from Cash Balance Plans?
The two are very different. Cash balance plans are used to increase retirement savings and reduce current taxes, primarily for owners, and perhaps for a few key executives. NQDC plans are designed to benefit key executives and employees. They are more flexible than cash balance plans and can be implemented for very specific employees. For this reason, they can be used as a recruiting and retention tool. Hower, they do not offer the same tax benefits as cash balance plans for owners.
How does an NQDC plan work?
Nonqualified Deferred Compensation (NQDC) plans offer a versatile framework to meet diverse executive benefit goals. Options range from employee-funded plans designed to help high earners bridge the retirement income gap, to employer-funded, unfunded arrangements that recognize business performance by promising future profit-based rewards. Whatever your strategy, we’ll tailor a plan that aligns compensation, retention, and business priorities with clarity and impact.
What are the tax benefits?
Participants defer income taxes until the deferred money is paid. Employers do not deduct the compensation until it’s distributed to the employee.
Are there contribution limits?
There are no formal IRS contribution limits, unlike 401(k) or pension plans. However, deferred amounts are subject to company policy and plan design. Plans must comply with Section 409A, which governs timing and form of payouts.
Is the money protected from creditors?
No. Deferred compensation remains part of the employer’s general assets, and is subject to company creditors in case of bankruptcy.
Can I roll NQDC assets into an IRA?
Generally, no. NQDC plan balances cannot be rolled over into an IRA or any other tax-advantaged account. Some 457(b) plans may be rolled to an IRA.
What are the risks?
Main risks include company insolvency, as well as restrictions on changing deferral elections or payouts — due to IRS Section 409A rules.
Why would a company offer an NQDC plan?
To attract and retain top talent with flexible, tax-deferred compensation, especially when qualified plan limits restrict high earners from saving more.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.