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Cash Balance Plans offer owners and executives of small to midsize companies a method of building exceptionally large cash accumulations. This asset build-up advantage for the older, highly compensated employee increases with age.[1]

As awareness of the economic benefits of this form of employee plan increases, the prevalence of these plans will correspondingly grow.

Recently published data indicated that there was a 500% increase in new Cash Balance Account Plans in the past decade. Moreover, the growth of Cash Balance Plans surpasses all other sectors of retirement plan benefits. At this time there are approximately are 11.1 million participants in Cash Balance Plans, with $724 billion in assets. Cash Balance plans currently constitute 20% of all defined benefit plans. In 2001 the figure was 2.9%.

Large Contribution Potential.

In 2013 a key employee or owner of a small to medium size firm, could at age 45, contribute annually, approximately $115,000.00 to a Cash Balance Account Plan (in combination with a Profit Sharing Plan). An individual age 55 could contribute annually, approximately $185,000.00 to a Cash Balance Account Plan (in combination with a Profit Sharing Plan). The maximum employee contribution to a stand-alone Profit Sharing Plan for 2013 is $17,500.00.

The Internal Revenue Service permits accumulations in an employee's account in a Cash Balance Account Plan (in combination with a Profit Sharing Plan) to be in excess of $2,000,000.00. Not relevant here is the fact that the highly compensated employee will draw her or his benefit from the Cash Balance Account Plan and the general employee population will draw benefits from the Profit Sharing Plan.

Because of Cash Balance Account Plans potential for substantial dollar accumulations, it is useful for attorneys to recognize that the assets in Cash Balance Account Plans are relatively easy to discover and value.[2] Significantly these assets are subject to Qualified Domestic Relations Orders, hence, with relative ease it is possible to assign all or a portion of this employee's account balance to an Alternate Payee.

Although a Cash Balance Account Plan is treated by the Internal Revenue Service as a Qualified Defined Benefit Plan, it is significant to observe that the assets of this plan may distributed to an Alternate Payee in a single lump sum, while the traditional Qualified Defined Benefit Plan is limited to annuity type distributions. Additionally, the Cash Balance Account Plan permits distributions to an Alternate Payee earlier than distributions to an Alternate Payee from a traditional Defined Benefit Plan.


Once the attorney representing the Alternate Payee becomes aware of the existence of this type of plan it is suggested that she or he in order to prevent the employee from attempting to dilute this asset promptly attempt to place a "QDRO Hold" on this employee's interest in the Cash Balance Account Plan. Go to troyaninc.com to see our article on "QDRO Hold".

[1] "Older" is a relative term. When the key people are on average ten years older than the general employee population, the Cash Balance Plan offers significant tax saving and pension building opportunities. Thus, the advantaged group may contain employees as young as 45.

[2] These plans are subject to ERISA's Reporting and Disclosure Rules.