More Small, Midsize Employers Adopting Cash Balance Retirement Plans, Report Says

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Growth in the number of cash balance plans tracks closely with a recent near-doubling of employer contributions to employee retirement savings, according to a July report from the consulting firm Kravitz.

The number of cash balance retirement plans in the United States increased by more than 20 percent from 2009 to 2010, nearly double the previous year's growth rate of 11 percent, Kravitz said in its 2012 National Cash Balance Plan Research Report.

Cash balance plans typically require employers to contribute 5 percent to 8 percent of pay to the retirement accounts of nonhighly compensated employees to offset larger contribution amounts allowable to business owners under cash balance plan rules, the report said.

Companies typically double their contributions to employee retirement savings when they add a cash balance plan to their retirement plan mix, Kravitz said.

Employer Contributions

For example, in 2010, the most recent year for which data was available, the average employer contribution to nonhighly compensated employees dual-enrolled in cash balance and tax code Section 401(k) plans was 6 percent, according to the report.

In contrast, the 2010 data also show that the average employer contribution to nonhighly compensated employees enrolled in a Section 401(k) plan only was 2.3 percent of pay, Kravitz said in the report.

Growth in the inventory of cash balance plans, occurring mostly at small and midsize employers, “dramatically exceeds expectations,” the report said. “The highest growth over the past five years has been in companies with fewer than 50 employees,” it said.

Various factors are contributing to cash balance plan growth, including the 2008-2009 financial and economic crisis, the report said. Because of continuing volatility in Section 401(k) investments, employers and their advisers view cash balance plans as a “safe money" option, according to the report.

Interest Crediting Rates

Cash balance accounts are guaranteed to increase each year because the plans provide guaranteed interest credits and predictable employer contributions based on flat or percentage-of-pay formulas. “Plan investments are typically tied to a benchmark such as the 30-year Treasury rate, so assets must be invested conservatively and do not fluctuate dramatically with market swings,” the report said.

For the report, Kravitz analyzed Form 5500 series filings and additional data on defined contribution and defined benefit plans from Private Pension Plan Bulletin Abstracts prepared by the Department of Labor's Employee Benefits Security Administration.

Kravitz announced it will be holding a webinar Aug. 9 to discuss the report.

A copy of the report is at