California and New York have the most such plans overall, accounting for 25 percent of all new plans, and are followed by Texas, Ohio and Florida. (Photo: Shutterstock)
Cash balance plans are on the rise, according to the new 2018 National Cash Balance Research Report from Kravitz, Inc. So are plan sponsor contributions.
The number of new plans has risen by 15 percent, and employer contributions have risen even more—by 30 percent—as legislation favoring such plans helped them along.
In 2016, the most recent year for which complete IRS reporting data are available, 20,452 cash balance plans were active. The plans, also known as hybrids, combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a 401(k).
Although uncertainty surrounding the 2016 election had been expected to slow what has been a decade of double-digit annual growth of such plans, that didn't happen; instead, that segment of the retirement plan market saw the 30 percent increase in employer contributions, amounting to $38.2 billion—driving total plan assets to $1.03 trillion. In 2015, employer contributions totaled $29.3 billion.
Small businesses are driving growth in cash balance plans, with 92 percent of such plans at firms with fewer than 100 employees; 57 percent have 10 or fewer employees. In addition, companies that have cash balance plans increase their contributions to employee retirement savings 50 percent, or even more. According to the report, the average employer contribution to staff retirement accounts is 6.9 percent of pay in companies with both cash balance and 401(k) plans, compared with just 4.7 percent of pay in firms that have just a 401(k) plan.
California and New York have the most such plans overall, accounting for 25 percent of all new plans, and are followed by Texas, Ohio and Florida. However, Georgia and Michigan account for the fastest growth—with Georgia hitting nearly 29 percent year-over-year growth in the number of new plans.
Some of that growth has been fueled by IRS regulations that allow broader investment options. The “Actual Rate of Return” option and other new investment choices approved in the 2010 and 2014 regulations, says the report, “made these plans more flexible for employers and removed certain funding issues.” Five years ago the number of large plans using actual rate of return was 10 percent; it now stands at 39 percent.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
