Why the growth in Cash Balance Plans?

The Pension Protection Act of 2006 (PPA) is long and hard to read, but it played a crucial role in establishing cash balance plans as a viable and legally recognized retirement savings option. Before 2006, cash balance plans faced frequent legal challenges. Those bringing the suits argued that cash balance plans violated established rules for benefit accrual and discriminated against older workers. The rulings on these cases were inconsistent, and many business owners were reluctant to risk establishing a plan that just didn’t have firm legal footing.

The Pension Protection Act ended this uncertainty about the legality of cash balance plans. The legislation set specific requirements for cash balance plans, including:

  • A vesting requirement: Any employee who has worked for their company for at least three years must be 100% vested in their accrued benefits from employer contributions.
  • A change in the calculation of lump sum payments: Participants in a cash balance plan can usually choose to receive a lump sum upon retirement or upon the termination of employment instead of receiving their money as a lifetime annuity. Before 2006, some plans used one interest rate to calculate out the anticipated account balance upon retirement, but, when participants opted to receive an earlier lump sum, the plan called for using a different interest rate to discount the anticipated retirement balance back to the date of the lump sum payment. This could lead to discrepancies between the hypothetical balance of the account (as determined by employer contributions and accumulated interest credits) and the actual lump sum payout, an effect known as “whipsaw”. The PPA eliminated the whipsaw effect by allowing the lump sum payout to simply equal the hypothetical account balance.
  • Clarification on age discrimination claims: A cash balance plan does not violate age discrimination legislation if the account balance of an older employee is compared with that of a similarly situated younger employee (i.e. with the same length of employment, pay, job title, date of hire, and work history), and the older employee’s balance is equal to or greater than the younger employee’s.

There are, of course, many other points included in this lengthy piece of legislation, but the takeaway is this: the Pension Protection Act of 2006 removed the legal uncertainty surrounding cash balance plans and made them a much more appealing option for small business owners. The number of cash balance plans in America more than tripled after the implementation of the PPA. Additional regulations in 2010 and 2014 made these hybrid plans an even better option, and we anticipate that their popularity will continue to grow. There are thousands of high-earning business owners out there who can reap huge, tax-crushing benefits from implementing cash balance plan – they just have to know about them first.

Happy Thanksgiving!

The Naples Asset Management Company, LLC Office will be closed November 24th & 25th in observance of the Thanksgiving Holiday.

In awareness that the market is open on Friday we will have a member of our team here for trading purposes.

From us here at NAMCOA, we wish you a wonderful and safe Holiday Weekend.

Business will resume as normal on November 28th, 2016.

NAMCO opens new Branch in Ocala, FL

Naples Asset Management Company (“NAMCO”) is pleased to announce the opening of its 9th branch office in Ocala, Florida.  Thomas j. Cooper, CFP, CPPT will head up the branch office. His email address is tcooper@namcobenefits.com , phone 352.857-7273.

NAMCO is expanding its wealth management and retirement plan services to other regions in the US.   NAMCO offers a full range of high end portfolio and planning services for business owners and high net worth investors,  Collectively NAMCO has over 300 years’ of financial services experience.

The Company continues to attract highly experienced Portfolio Managers and Planners who seek institutional level portfolio and planning tools to deliver and manage investors’ portfolios at the lowest cost, with a fiduciary approach, which put the clients interest foremost.

NAMCO’s Office locations include Fort Myers, FL, Greenwood Village, CO, Naples, FL, Sarasota, FL, Lake Oswego, OR, San Francisco, CA, Sugarland, TX . Walnut Creek, CA and now Ocala, FL.  Please contact us for more information about the Ocala office, contact Thomas Cooper at tcooper@namcobenefits.com  or by phone at 352.857-7273.