Cash Balance Plans Top $1 Trillion

California and New York have the most cash balance plans overall, but that’s not where the fastest growth is occurring.

Employer contributions to cash balance plans soared 30% in 2016, lifting assets of those programs to $1.03 trillion, according to the 2018 National Cash Balance Research Report, from Kravitz, Inc., an Ascensus company, which also found a 15% net increase in the number of new cash balance plans.

California and New York account for 25% of all new cash balance plans followed closely by Texas, Ohio, and Florida. However, the fastest growth has been in Georgia and Michigan; Georgia had close to 29% year-over-year growth in new plans, according to the report.

The report noted 20,452 cash balance plans active in 2016, the most recent year for which complete IRS reporting data is available. The report’s authors note that growth was expected to be slightly slower in 2016 due to election year uncertainty and possible changes to tax rates, but these factors did not ultimately impact the market.

Other key findings:

  • 92% of cash balance plans are in place at firms with fewer than 100 employees; 57% have 10 or fewer employees.
  • The average employer contribution to staff retirement accounts is 6.9% of pay in companies with both cash balance and 401(k) plans, versus 4.7% of pay in firms with a 401(k) plan alone.
  • Medical/dental groups and law firms still make up 48% of the market.
  • The median asset size of a cash balance plan is $486,390; the average is $50.3 million.
  • 30% of cash balance plans have assets over $1 million.
  • The number of large plans using Actual Rate of Return is now 39%, up from just 10% five years ago.

According to a press release, the “Actual Rate of Return” option and other new investment choices approved in the 2010 and 2014 cash balance regulations made these plans more flexible for employers and removed certain funding issues. According to the report, before the IRS cash balance regulations were published in 2010, an estimated 95% of cash balance plans used the yield on the 30-year Treasury bond.

The report notes that there are now approximately 11.8 million participants in cash balance plans nationwide.

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