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  • Writer's pictureSamantha Diggs

Last Call For Cash Balance Plans

Updated: Mar 11, 2022

As 2021 is coming to a close it is important to make sure your business has met all the yearly deadlines for managing your company’s retirement plan. If your organization offers a Cash Balance plan as a retirement option, several important deadlines fall in December. If you are considering adding Cash Balance plans as a retirement option for your employees next year, then this is also the time to start learning more about Cash Balance plans and start gathering the information needed for enrollment. In this blog, we will discuss the upcoming deadlines and the basics of Cash Balance plans.

What is a Cash Balance Plan?

A Cash Balance plan is like a traditional pension with a twist. Both have an option for workers to have a lifetime annuity. Unlike a traditional pension, a Cash Balance plan creates an individual account for each employee. A Cash Balance plan sets a certain amount of money that will be available to employees once they retire. The plan is funded by the employer and compounded interest. Once the employee retires, they can choose to take the money in one lump sum or have payments spread out over time. With a Cash Balance Plan, all investment risk is put on the employer, not the employees. A Cash Balance plan is considered a Defined Benefit plan.

Other Things to Know About Cash Balance Plans

1. Significant Tax Benefits

Cash Balance plans can bring tax benefits to the company. When an employer contributes to an employee's account it can be claimed as a deduction by the employer during tax season.

2. Can Combine with Other Plans

One of the major advantages of Cash Balance plans is their ability to be combined with a company's existing 401(k) plan.

3. Tailor for Individual Needs

Cash Balance plans are flexible and can be tailored to accommodate the needs of various employees.

4. Seal of Approval from the IRS

Cash Balance plans are IRS-approved and have been supported as a viable retirement plan since 2006.

5. Employer Contributions

Cash Balance plans require an employer contribution, unlike some other retirement plans.

6. Employer Investment Risk

All investment risk associated with a Cash Balance plan fall on the employer.

7. Maintenance Costs

Cash Balance plans cost more to maintain and operate than a traditional 401(k) plan but the benefits are much greater.

Upcoming Deadlines for Retirement Plans

  • December 1st - Annual Participation notices must be distributed by this date to all participants.

  • December 15th - Summary Annual Report must be distributed by this extended deadline.

  • December 31st - Corrective distributions for failed ADP/ACP testing must be processed by this date.

As you prepare for the end of the year keep your company retirement plans in mind. It is important to meet federal regulations and deadlines to keep your company in compliance. This is also the time of year to consider and make decisions on if your company will start offering new types of retirement plans for your employees. A Cash Balance plan may be a great option to add to your retirement plan options for your employees to choose. If you have questions regarding Cash Balance plans and other retirement plans, contact RPCSI today to learn how we can help with your retirement plan!

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