Make financial wellbeing part of the work.

What we review with you

• Eligibility and entry dates — who joins the plan, and how soon.
• Employer contribution strategy — match, profit sharing, safe harbor, or none, and what each choice costs and buys you.
• Vesting schedules — when employer dollars become the employee's to keep.
• Auto features — automatic enrollment and automatic contribution increases, and how they change participation.
• Loans, distributions, and leakage — the rules that quietly determine how much of the plan's money actually stays invested until retirement.
• Plan documents and required notices — keeping the written plan, the summary plan description, and participant notices current as rules change.

Who they tend to fit

Defined benefit and cash balance plans work for organizations of every size, from sole proprietors to large corporations. The most common adopters today are sole proprietors and owner-only corporations, along with smaller professional practices — attorneys, physicians, dentists, CPAs, and similar firms.

Why owners consider them

1. You are already maximizing a 401(k) or IRA and want to lower taxes and save more.
2. You want to contribute more each year than a 401(k) alone allows.
3. You are 40 or older and want to accelerate retirement savings while reducing current taxes.
4. You already contribute 5% to 7.5% of pay for your staff in a 401(k) profit sharing plan. The two plans can then be tested together — often called combo testing — so owners can be provided meaningful benefits at little or no extra cost for the rest of the team.
5. You have a workable ratio of employees to owners (generally no more than 10 to 15 employees per owner, with employees generally younger), which makes combo testing cost-efficient.

The tax advantage

Both plans are qualified under Section 401(a) of the Internal Revenue Code. That means contributions are tax deductible, assets grow tax deferred inside the plan's trust, and a distribution can generally be rolled over tax free to an IRA or a 401(k) profit sharing plan, deferring taxation further.

The savings can be immediate. A $100,000 contribution in a 35% federal bracket saves $35,000 in federal tax in the first year alone — more in states with an income tax — and the full $100,000 keeps growing tax deferred, rather than the roughly $65,000 that would be left of an after-tax contribution to a regular brokerage account.

How they work

A 401(k) profit sharing plan is a defined contribution plan: the document defines what goes in, and the outcome depends on contributions and investment performance. A defined benefit or cash balance plan works the other way — it defines the benefit the participant is entitled to receive. A defined benefit plan defines it as an annuity benefit that can be converted to a lump sum; a cash balance plan defines it as an annual contribution credit plus an interest credit.

Because a benefit is generally earned each year, a contribution is generally required each year, funded into a pooled trust. There is flexibility: the plan's actuary calculates a minimum required and a maximum deductible amount for the year, and the plan sponsor chooses where to fund within that range.

Defined benefit plans also carry a lifetime benefit limit. Reaching that maximum generally takes at least ten years — at which point the plan can be terminated and its assets moved to a 401(k) profit sharing plan or an IRA through a qualified rollover, without taxable income to the participant.

Which design fits

For sole proprietors and owner-only corporations, a defined benefit plan is usually the most effective way to maximize both tax savings and retirement benefits. Where there are non-owner employees, a cash balance plan paired with a 401(k) profit sharing plan is typically the most cost-effective route — it maximizes benefits for the owners while meeting the nondiscrimination and minimum benefit requirements for eligible employees.

Lump sums, not annuities

Yes. Sponsors of both designs almost always elect lump sum payout options. Most new plans use them extensively, and once the plan is no longer needed to accrue benefits it can be terminated and the owner's assets rolled to a 401(k) profit sharing plan or IRA, where they keep growing tax deferred.

Can you have both?

Yes — many sponsors do. A 401(k) profit sharing plan can sit alongside a defined benefit or cash balance plan, both to add savings for owners and, where there are employees, to satisfy the nondiscrimination rules for the plan as a whole.

Getting started

Both designs require plan documents setting out the provisions — eligibility, benefits, distributions, and so on. We work with your committee to identify the design that fits, and coordinate with the plan's document provider and administrator to put it in place. Adopted by the end of the year, a plan can often be effective retroactively to the beginning of that year — which means the tax savings and added retirement savings can begin for that year.