Financial Services - Cash Balance Plan

Cash Balance Plans at a Glance


A Cash Balance plan is a trustee-directed defined benefit plan that specifies both the contribution to be credited to each participant and the investment earnings to be credited based on those contributions. Plans can be tailored so that employers can elect an interest crediting rate that best meets their specific objectives.

Each participant has an account that resembles and accumulates like an account under a Defined Contribution plan.




5Cash Balance plans combine the benefits of Defined Contribution plans with the higher contribution limits of Defined Benefit pension plans.
5Many small business owners are able to contribute up to or close to the 2019 maximum Cash Balance credit of $289,000 at age 62.
5Unlike a 401(k), all cash balance investment decisions are made by the sponsoring employer and their financial advisors.
5Distributions may be made in a lump sum or annuity and requires annual review by an actuary.
5Combining an existing 401(k) Plan with a new Cash Balance plan will provide the most flexibility in plan design and contributions, plus allows partners/owners to have different benefit formulas while reducing overall employee contributions as much as allowed by law.

Who these plans are designed for

Cash Balance plans are perfect for employers who maximize contributions under an existing Defined Contribution plan (like the IMANA MEP) but would like to contribute more.  If you want to save more than $56,000 per year for retirement, consider adding a Cash Balance plan and increase your tax-deferred benefits.  These plans are in addition to, not instead of, the Defined Contribution plan.

A few rules of thumb

Cash Balance plans satisfy coverage and nondiscrimination rules in combination with a Defined Contribution plan on a “cross-tested” basis. This demonstrates that contributions under both plans for Non-Highly Compensated Employees (NHCEs) provide, for a significant number, retirement benefits that are comparable to those provided for HCEs — an age-based test/ time value of money. To be able to “cross-test”, the employer must contribute a minimum “gateway” to all eligible NCHE’s on a non-elective basis. The minimum gateway allocation requirement for NHCEs is generally the equivalent of 7.5% of pay. This is a minimum and not a guarantee that cross-testing will pass.

The “Ah-ha” Moment 

Owner/employees in a C-Corp who contribute to a Cash Balance plan rather than take bonuses of W-2 pay actually save, not defer, Medicare taxes – employer, employee and “Obamacare” amounts. This tax savings is often greater than the cost of the Cash Balance plan administration.

The IMANA MEP will continue to be overseen by a committee of Association members. BPAS will serve as directed trustee and will administer all plans that elect to participate. In addition to a standard suite of institutional funds and a brokerage window, the menu of investment options includes the MIZAN Fund, a Shariah-compliant Collective Trust. The MIZAN Fund (TICKER: MZM10) is sub-advised by Lightstone Capital Management, and monitored by the IMANA Trust Committee.

BPAS is a national provider of retirement plan and fund administration, transfer agency, collective investment fund, and other institutional trust services. BPAS supports 3,800 retirement plans, $77 billion in trust assets, $1 trillion in fund administration, and more than 450,000 participants. With BPAS’ breadth of services, they are well positioned to help solve their clients benefit plan challenges without the need to engage multiple providers.

I believe this new service offering from our Association combines the economies of scale for investment product, fiduciary services and plan administration pricing, with well established principles of religious accommodation in the workplace.

Please feel free to contact Ashraf Elghandour of UBS directly at (973) 360-4384 or at [email protected] for more information on this exciting new Cash Balance offering and/or the IMANA 401(k) MEP.

Have a question? Get in touch.

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