In today's world of increasing taxes and expenses, people are finding it more difficult to save money and prepare for the future. Right now, 401(k) and profit sharing participants can only contribute and tax defer about $50,000 per year.
However, many people are desperate for larger tax deductions and accelerated retirement savings. This presents an opportunity for advisors, who can help clients accomplish their objectives through a cash balance plan, which allows contributions of up to $250,000 per year (depending on age).
A cash balance plan qualifies for tax deferral and creditor protection under ERISA. In a cash balance plan, each participant has an account. The account grows annually in two ways: first, through contributions and second, through an interest credit, which is guaranteed rather than being dependent on the plan's investment performance. The interest credit rate is usually tied to the yield on the 30-year Treasury bond, which is about 3 percent to 4 percent.
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Because of the new taxes implemented at the beginning of the year, cash balance plan inquiries have skyrocketed. Historically, 80 percent of all cash balance plans are implemented during the fourth quarter, so it presents an interesting new trend. A 2012 research report indicates a 21 percent increase in new cash balance plans in 2010, up 10 percent from the previous year's growth rate. The report points out medical groups have the highest percentage of cash balance plans at 25 percent, followed by dentists at 12 percent and law firms at 10 percent.
Some companies have implemented cash balance plan coaching programs to help financial advisors gain a competitive edge. These programs are typically broken into four segments. Financial advisors begin with Cash Balance 101, which provides an introduction and overview of case studies and tax savings, helps advisors determine ideal candidates for cash balance plans and reviews the features of a cash balance plan. Financial advisors then continue on into Cash Balance 201. This section helps advisors achieve a deeper understanding of plan design challenges and solutions, IRS testing and compliance issues, and interest crediting rate options.
The Cash Balance Sales and Marketing section comes next which teaches financial advisors how to close a sale and provides strategic selling tools. The last section of the Cash Balance Coach Program highlights the key principles that financial advisors should know about investing cash balance plan assets, funding issues and understanding the advisor's role in the retirement planning process. And finally, the program concludes with an online exam. Upon completing the course and passing the final test, financial advisors become Cash Balance Consultants.
Cash balance plans are becoming more popular as investors search for ways to defer taxes and save money for the future. With the increasing popularity of cash balance plans, financial advisors with the Cash Balance Consultant certification are more valuable to their clients and to potential clients.
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