5 Pro Tips for Managing a Cash Balance Plan during a Pandemic

Nobody ever imagined that this generation would witness one of the worst pandemics of humankind – COVID-19. However, we need to prepare for uncertain times when it comes to managing the Cash Balance Plan in our finance system. In this article, you will find powerful tips for managing your cash balance plan.

First, let’s understand what actually a Cash Balance Plan is and what Cash Balance Plan strategies you can apply to ease your burden?

Cash Balance Plan Definition

A cash balance pension plan is a pension plan with the option of a lifetime annuity. For a cash balance plan, the employer credits a participant’s account with a set percentage of their yearly compensation plus interest charges.

A cash balance pension plan is a defined-benefit plan that acts in some ways like a defined contribution plan as it incorporates elements of both, it is sometimes called a ‘’hybrid’’ plan. The plan’s funding limits, funding requirements, and investment risk are based on defined-benefit requirements. Changes in the portfolio do not affect the final benefits received by the participant upon retirement or termination, and the company bears all ownership of profits and losses in the portfolio.

In this blog, we will outline 5 solid tips for managing your cash balance plan during a pandemic. 

During times of uncertainty, with a lot of things that need your immediate attention, worrying about managing your Cash Balance plan would be the last thing to do.

Here are 5 powerful tips to ease your Cash Balance Plan burden today:

1. CONSIDER FREEZING THE PLAN FOR A WHILE.

A little known fact about Cash Balance Plans is that they can be frozen. This option can provide the plan sponsor the flexibility to adjust future contribution commitments (potentially decreasing costs) and later reinstate them when the period of uncertainty is over.

This can be very valuable during economic uncertainty. The experts from Sandmartin can help you with this process and may bring up this strategy proactively as an option to consider.

• REVIEW YOUR ASSET ALLOCATION.

Proper asset allocation is quintessential when it comes to managing your personal finances. The recent market downturn has likely reduced the assets in your CB plans. The Cash Balance Plan Management includes proper diversification of cash into various asset classes.

Reviewing the asset allocation must be done on an ongoing basis, especially during uncertain times. In case of tailoring your allocation to target the plan’s interest crediting rate (ICR, the annual rate of expected return) one way is to make future contribution levels more predictable.

At Sandmartin, our well-trained and experienced team with strong analytical skills can help you overcome these uncertainties.

• HAVE ONE ADVISER TO MANAGE YOUR CASH BALANCE PLAN AND 401(K) PLAN.

If you have a Cash Balance Plan, you most probably also have a 401(k) plan. It’s textbook knowledge that keeping separate providers for the two plans can add extra work and cost to your plate.

However, you can enjoy certain benefits like a streamlined, holistic solution, the unified strategy of the 2 plans for maximum efficiency; and it can save you time and money!

For example, having a single adviser i.e Sandmartin consultants for the two plans enables you to coordinate plan parameters like vesting schedules and employer contribution formulas to maximize efficiency and flexibility.

• TRANSPARENT COMMUNICATION WITH EMPLOYEES.

During uncertain times it’s quintessential to communicate with your employees, especially when it comes to the retirement plan(s).

A good adviser such as Sandmartin expert will reach out to each plan participant in your Cash Balance Plan (and 401(k) plan) to answer any questions they have regarding the Cash Balance Contribution limits 2020, Cash balance plans investment options, current market scenario, their retirement goals, their assets, etc.

Our unparalleled experience can help you smoothen the processes and can efficiently manage such plans for you.

• PROFITABILITY OF BUSINESS WILL BE NEGATIVELY IMPACTED IN 2020 AND BEYOND.

Businesses that can afford to make larger contributions to make up for the asset deficiency are generally allowed to do so. Nevertheless, if you are unable to make the minimum contribution, there could be significant financial penalties/excise taxes that come into play, including higher Pension Benefit Guaranty Corporation premiums for applicable plans.

If you have concerns about your ability to make future contributions, you may want to contact us to guide you through various options available to cope up with this concern.