Cash Balance Plans

A Cash Balance Plan is a type of defined benefit retirement plan that maintains each participant’s benefit as a hypothetical “account” funded by employer contribution credits and defined interest credits. It combines the predictability of a traditional pension with the transparency and portability of defined‑contribution plans, allowing retirees to take their vested balance as either a lump sum or to convert it to an annuity.

Will a Cash Balance Plan Work for You?

When business owners or professionals set up a retirement plan, they want to find an option that maximizes their benefits and offers the best tax efficiency. Cash Balance Plans offer a way to fulfill both goals.

Grey Ledge Advisors is proud to work with certified public accountants (CPAs) to establish Cash Balance Plans. By complementing a CPA’s professional services with our expertise, we can help achieve positive outcomes.

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Advantages of Cash Balance Plans

Higher Contribution Limits

Tax Advantages & Deductions

Simplified Retirement Budgeting

Tailored Towards Your Business Goals

Higher contribution limits available with Cash Balance Plans help older professionals accelerate their contributions and catch up on retirement savings. Since annual contributions are fully tax-deductible, they can also provide substantial tax savings each year.

Some Cash Balance Plans also offer predictable contribution costs, which helps to simplify budgeting for this expense. They also allow substantial flexibility in their design, allowing them to be tailored to meet individual business goals and employee demographics. There are two types of plans, one is a fixed contribution with a variable interest rate, the other is a fixed interest calculation with a variable deposit allocation.

How Cash Balance Plans Works

Cash Balance Plans are defined benefit retirement plans that provide guaranteed income for beneficiaries. Instead of an employee deferring some of their income for retirement, a company makes a tax-deductible annual contribution, known as a pay credit, equal to a portion of the employee’s income (the amount is calculated by an actuary based on a number of factors, including age and income). Contributions are invested in a single, pooled account, and a hypothetical balance is set for an employee to receive at the time of their retirement.

Cash Balance Plans offer two designs: traditional, providing predictable growth through fixed or benchmarked interest rates (e.g., one-year U.S. Treasury), and Market Rate, where interest mirrors the performance of an employer-chosen investment portfolio, possibly with a floor. In contrast to defined-contribution plans like 401(k)s and IRAs, which involve direct stock market investment and greater volatility, traditional Cash Balance Plans offer steadier growth. Market Rate plans have fluctuating returns tied to market performance but are generally less volatile than direct stock investments. Employers typically bear the investment risk in both plan types.

When an employee retires, their benefit will be based on their employment length, earnings over time, and retirement age. While most recipients elect a lump‑sum distribution (with the option to roll the funds into an IRA or another retirement investment plan), others turn to a wealth management advisor such as Grey Ledge Advisors to assess whether a customized portfolio or an annuity better aligns with their financial goals.

Cash Balance Plans Work for a Number of Businesses

Businesses with Stable High-Income Cash Flow
Single-owner Businesses / Small Business Owners
Law Firms / Medical Practices / Dental Practices / Veterinary Practices

Cash Balance Plans are particularly well-suited for businesses with a stable, high-income cash flow that allows them to consistently make contributions to the plan. Ideal candidates include single-owner businesses, established small business owners, law firms, medical practices, and other businesses looking to increase their retirement savings.

Cash Balance Plans are often held by business owners who have maxed out their contribution limits on retirement plans like 401(k)s and Profit-Sharing Plans. They are sometimes offered as a compelling benefit in a company’s benefits package to help attract and retain talented individuals, as long as they meet minimum participation and non-discrimination requirements.

The Benefits of a Grey Ledge Advisors Partnership

Grey Ledge Advisors works closely with each client to craft customized plans aligned with their specific goals, serving as a dedicated fiduciary to manage assets solely in their best interests. Through proactive communication and transparent reporting, we help clients gain a deep understanding of — and lasting confidence in — their plan’s design and performance.

We are a longtime affiliate of Ascend Bank, a community bank that has served the Connecticut shoreline since 1875. Through this partnership, we offer access to helpful banking services, referrals to potential clients, and a strong commitment to the growth and prosperity of local businesses.

We also provide a wide range of financial advisory services that can benefit clients. These include asset management, assistance with estate planning, and tailored services for individual business types such as non-profit organizations and veterinary practices.