Retirement planning is a vital part of a company’s business plan. A business owner can choose from a variety of qualified retirement plans, from a Simplified Employee Pension Plan (SEP) to a 401(k) Plan to a Defined Benefit Plan. A business owner will generally determine which plan is right for him based on such factors as how much he wants to contribute to a plan, whether the plan offers guaranteed investments, and the nature of the benefits provided by the plan. A common plan in today’s retirement market is a cash balance plan.
What is a cash balance plan? A cash balance plan is a defined benefit pension plan that resembles a defined contribution plan. Instead of defining the benefit to be provided at retirement as a stream of income, like a defined benefit pension plan, a cash balance plan defines the benefit in terms of a stated account balance. An employer generally contributes a fixed percentage of an employee’s compensation to the employee’s individual account, like a defined contribution plan. The employee’s actual benefit at retirement depends on how much income the employee’s account balance can generate after retirement. Whether a cash balance plan is right for your client depends upon a number of factors. RMC Group can help you decide which retirement plan is best for your client.
Over a period of years, we have discovered that a traditional defined benefit pension plan will often make more sense for your client; especially in cases where your client is a sole proprietor or the business has one owner or few employees. A traditional defined benefit pension plan is easier to administer than a cash balance plan and has fewer fees. This may make a traditional defined benefit pension plan more appealing to your client. However, there may be reasons for your client to consider a cash balance plan. A cash balance plan may make sense for a business with multiple owners, especially where there is a large age gap between the owners. A cash balance plan can help to align the contributions for each owner. On the other hand, a traditional defined benefit pension plan aligns the benefits to be provided at retirement, which could result in unequal contributions for the owners.
RMC Group will review both options with you to help you determine which plan design works best for your client. We will help you evaluate your client’s goals and expectations to formulate a plan that works best for your client. To request a quote or discuss retirement plans, contact RMC Group at 239.298.8210 or [email protected].