When it comes to something as important as retirement, you want to feel like you’re on top of your game. But as of 2024, more than half of Americans feel they’re behind when it comes to retirement savings—and over a third feel they’re significantly behind.

For older savers, the problem is more dire: 68% of Generation X (ages 44-59) and 66% of Baby Boomers (ages 60-78) say they’re behind the curve. Millennials and Generation Z respondents are only slightly more optimistic.

But if you’re a business owner, you may have an ace up your sleeve—without even knowing it.

Whether you’re behind on retirement savings or simply hoping to beef up your account balances, a Cash Balance Pension plan offers unique benefits that can help you maximize your nest egg. Designed to surpass traditional savings limits, a Cash Balance Pension plan also provides immense tax savings benefits and liability protection not commonly found with other retirement plans.

Below, we explore three ways a Cash Balance plan can help you supercharge your savings—and achieve greater confidence in your retirement goals.

Additional Savings Potential

For starters, let’s provide some background on this transformative retirement savings vehicle.
A Cash Balance Pension plan is an employer-funded pension plan that acts as a hybrid plan between a defined-benefit and a defined-contribution plan.

If that tangle of words has you scratching your head, don’t worry—what you need to understand is simple. In short, a Cash Balance Plan’s maximum contributions are age-dependent. I The older you are, the more your employer or business can contribute, which is part of what makes them such powerful retirement vehicles.

In addition, annual Cash Balance contributions limits are generally higher than those for other common types of retirement plans, including IRAs, 401(k)s and 403(b)s. Along with your age, your individual annual contribution is calculated using factors like your three-year average compensation amount and years of service—which can help push your limit even higher.

Obviously, that’s a good thing if you’re closing in on retirement—but not your savings goals. But these potent plans have even more to offer for business owners at any stage of their careers.

No Limit on Deductible Retirement Contributions

Under IRS regulations, employers sponsoring a defined benefit plan—including Cash Balance plans—are allowed to deduct the entire amount of the contribution required to fund the minimum liability for the plan. (In other words, the annual contribution amount that you and the actuary decide you need to reach your desired benefit.)

That’s not that exciting, because it’s standard to many retirement plans. But because Cash Balance plans are defined-benefit plans, they can be paired with a defined-contribution plan, like a 401(k)—which can push your plan contributions even higher.

For example, a solo business owner could potentially max out their 401(k) with profit-sharing plan contributions at $69,000 (per 2024 limits), and then place another $100,000 into a Cash Balance plan. That’s a total of $169,000 in deductible retirement plan contributions.

The result: huge tax savings along with accelerated retirement savings, all at the same time. Win-win.

Protection From Bankruptcy and Creditors

In addition to the Employee Retirement Income Security Act (ERISA) protection provided on all qualified retirement plans, defined benefit plans—including Cash Balance Pensions—have another layer of protection offered by the Pension Benefit Guaranty Corporation (PBGC).

The PBGC is a federal agency created by the ERISA Act of 1974 to protect pension benefits that pay a set monthly amount at retirement. If a Cash Balance plan ends or is terminated without enough money to pay out promised benefits, the PBGC will step in and pay for the benefit provided by your pension plan, up to the limits set by law.

Ideal Candidates

While it makes sense to save as much as you can for retirement, the Cash Balance Plan isn’t right for everyone. But there are a few scenarios where saving to a Cash Balance plan is a no brainer.

Cash Balance Plans are ideal for business owners who have demonstrated consistent year-over-year profits, and who are looking to save more than the maximum amount allowed within their 401(k). Entrepreneurs often put investing into their company ahead of retirement planning, which means playing catch-up in the later years. Adding a Cash Balance Plan allows them to potentially accelerate their retirement savings by an additional six figures.

Also, since the maximum contribution amount allowed is dependent on age, the older the employee or company owner is, the more they can contribute toward their retirement.

A Cash Balance Pension plan offers a powerful combination of higher contribution limits, hefty tax deductions, and layered asset protection—and for the right savers, it’s an often-overlooked solution worth exploring. Here at Felton & Peel, we aim to guide you through the hoops and hurdles of the retirement planning process, providing you with the expertise needed to help you comfortably reach your retirement goals. We’re here to help—and your first consultation is free.