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Older individuals are
to owners and participants and that the Form 5500,
Annual Return/Report of Employee Benefit Plan, is
filed); and, finally, the investment manager.
The plan’s annual costs are a function of hiring allowed higher contributions
high-level professionals to manage this separate
entity, the pension plan. For CBPs with only a because there is less time to
handful of participants, startup fixed costs can
run from $2,000 to $3,000, and ongoing an-
nual costs can be about $3,000 (for four to five compound and accumulate
participants). Costs rise incrementally for larger
plans. In addition, there may be Pension Benefit
Guaranty Corporation premiums to pay, and the the maximum balance of
money manager (who targets investment returns
to the trust document’s stated interest benchmark)
will typically charge a fee equal to a percentage $3.1 million prior to
of assets.
The starting point for any pension plan is a retirement.
company census that includes owner and employee
demographic information — including age and
salary level. This information is provided to the
third-party administrator, who uses it to creatively
structure the plan documents based on owner/
principal goals. A good third-party administrator will A VALUABLE OPPORTUNITY FOR THE RIGHT
create a plan trust document that includes language BUSINESSES
to accommodate flexibility in needs or goals. By adopting CBPs, business owners can quickly
The trust document is then provided to a build up their own retirement account, generate
custodian firm — most often a brokerage custodian large tax savings for themselves, and encourage the
— that can set up the account and hold plan assets. dedication of valuable talent. These hybrid pension
It is important to note that most CBPs are paired plans tap into business cash flow to help accelerate
with a 401(k) profit-sharing plan to maximize a business owner/professional’s retirement savings
contributions and allow for plan funding flexibility. while generating significant tax benefits for them
After recent regulatory changes, contributions to and other participants. Informed CPAs can con-
the CBP can now be made up until the entity’s tax nect clients to these plans to help them maximize
filing date including extensions. the rewards of their successful businesses. ■

Which clients benefit most from cash balance plans?

A client may be a good candidate for any) have several hundred thousand to make large ($100,000 or more)
a cash balance plan if the following dollars of salary or flowthrough retirement contributions for more
conditions exist in whole or part: Federal Insurance Contributions Act than five years.
■ The client’s business is profitable income. ■ The company is willing to make
with between two and 10 ■ The client is interested in making limited contributions for nonowner
employees, and the client is a larger contributions than allowed in employees (usually 5% to 7% of
high-earning professional or a key a SEP-IRA or 401(k), which are limited pay). These contributions generally
owner of a partnership. in 2022 to $61,000 for participants are coordinated with the company’s
■ The client is over age 35. under age 50. safe-harbor 401(k) or profit-sharing
■ The client (and business partners, if ■ The company’s cash flow is available plan.

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