An actuary is an obvious choice if someone is seeking information about cash balance retirement plans. But, a sale won’t happen without an adviser, says Mike Spickard, an Akron, Ohio-based executive vice president at CBIZ Retirement Plan Services. “The adviser is the key to selling a cash balance plan — without question.”

That’s because actuaries have almost no success selling to the public, Spickard says. That’s understandable, as most clients have a stronger relationship with their adviser than an actuary. “Our clients only trust us to the extent that their adviser trusts us,” he says. Even CBIZ’s own 401(k) clients need to get a second opinion before proceeding with a cash balance plan, Spickard says. “They say, ‘Let me talk to my investment adviser.’”

Plus, Spickard says, most clients don’t understand the complex issues actuaries deal with. “They often see the final result,” he says.

That’s why working with advisers is so crucial, Spickard says. “We’ve learned over many years to put that idea first in the investment adviser’s head,” he says.

‘One of the last best pure tax deductions’

Cash balance plans are “one of the last best pure tax deductions” because they’re not subject to taxes, phase outs or amortization, Spickard says. Nearly every plan is set up as a tax reduction strategy, he says, and that has been the trend for some time. “Cash balance plan design has largely remained unchanged for the last 10 to 15 years,” Spickard says.

Interest in them, however, has grown substantially. From 2011 to 2012, cash balance plans surged 22%, according to a study by retirement consulting firm Kravitz Inc. During the same time, the number of 401(k) plans grew just 1%, says the study, which analyzed data from Form 5500 filings for 2011-12.

Cash balance plans make up a quarter of all defined benefit plans, up from 2.9% in 2001, the report says. “The rise in cash balance plans coincides with steady decline in traditional defined benefit plans.”

That shift has been happening for decades. From 1980 to 2008, the number of private sector employees with a DB pension dropped from 38% to 20%, according to the Office of Retirement and Disability Policy. During that same time, the percentage of private workers with a defined contribution pension plan grew from 8% to 31%.

Cash balance good fit at small companies

Smaller firms are the driving force behind the increased popularity in cash balance plans. Kravitz found that firms with fewer than 100 employees account for 87% of cash balance plans, and the largest increases are among firms with 25 or fewer employees.

That growth continued last year, says Spickard. In his office alone — which typically sets up cash balance plans for companies with 50 employees or less — Spickard says CBIZ set up more than 70 plans in 2014, a 40% increase from the prior year.

Cash balance plans also foster more employer contributions. Companies with both cash balance and 401(k) plans had an average employer contribution of 6.3%, Kravitz found. Employers contributed 2.6% on average at companies that only have 401(k) plans. 

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