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Cash Balance Pensions – The most overlooked tool in a business owners retirement tool kit?

| June 24, 2018
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As the 401k market has grown to become most people’s main source of retirement funds, it seems that the Cash Balance Pension (CBP) has become the ugly duckling of the retirement plan universe.  Misconceptions about its benefits, its difficulty to administer and its cost have driven businesses – and even advisors – away from CBP plans.

A CBP plan can provide many benefits:

  • Save more dollars than a traditional 401k/profit sharing plan
  • Provide contribution flexibility
  • Work in combination with a 401k/profit sharing plan
  • Help retain or attract key employees
  • Get cash out of the company as part of a succession plan for owners
  • A trust asset shielded from creditors/business risk exposure

Certainly, these types of plans can be complex.  However, there are also many cases where the benefits to owners, executives, and key employees are significant and warrant consideration.  The question is of course: is a CBP plan right for you and your company?

The answer to that question depends on numerous factors: demographics of all employees, the compensation for each employee, years of service, etc.  The good news is that you don’t have to be the expert that answers these questions. At Stronghold, we assist our clients through this process by utilizing our network of plan administrators to determine the plan that best fits their needs and goals.  

We would recommend as part of your next periodic retirement plan review, you inquire about CBP plans and consider whether it may be a good fit for your company.  If you haven’t done a review in some time or don’t do periodic reviews, the sooner the better.

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