Cash balance plans have become increasingly more popular among small and midsize businesses in recent years. In fact, according to Kravitz, 92 percent of cash balance plans are in place at firms with fewer than 100 employees. This is for good reason: cash balance plans offer a range of benefits for employers that set them apart from other retirement plan options. Below are some of the most notable advantages of cash balance plans for business owners.
1. Cash balance plans are easy to understand
Cash balance plans are simple to understand and communicate to employees. Employees can track their retirement funds easily, as benefits are given a dollar amount. This also makes it easier for them to evaluate their financial situation and plan for the future. Furthermore, because cash balance plans can be easily understood, employees are more likely to feel confident and satisfied with their retirement benefits.
2. Cash balance plans offer superior tax savings
Cash balance plans offer better tax savings than many other types of retirement planning tools. They are considered qualified plans, and when you contribute to one of these plans on behalf of your employees, the contributions you make count as tax-deductible expenses. This allows employees to reduce their taxable income as you reduce your tax liability.
3. Cash balance plans have higher contribution limits
Cash balance plans offer a higher contribution limit than a traditional defined contribution plan. This allows employees to accumulate the retirement savings they need faster than they could with another type of plan.
4. Cash balance plans are flexible
Cash balance plans are much more flexible than many of the other options available. For example, with cash balance plans, you can vary contributions made to the plan for different groups. You can use this feature to your advantage by rewarding higher performing employees for their superior efforts and/or providing better benefits for tenured employees. If your employees decide to leave the company, the plan can be transferred or rolled into an IRA.
5. Cash balance plans give your company the ability to attract and retain top talent.
With so many potential employers competing for the top talent in the industry, you need a way to set your company apart. In many cases, job candidates will consider the benefits different companies offer when deciding which position to accept. The benefits of cash balance plans make them exceptionally appealing to potential employees, which may make these individuals more likely to apply for and/or accept a position with your company.
Cash balance plans offer a variety of benefits for employers, including flexibility, simplicity, tax savings and appeal to potential employees. By offering these plans, you will not only ensure that your employees have access to one of the most advantageous retirement planning tools available, but you will also improve your business's bottom line. If you are interested in learning more about cash balance plans or other retirement planning options for small and midsize businesses, contact Caldwell Trust Company today.