Cash Balance Plans and Traditional Defined Benefit Plans both fall under the Defined Benefit category, though they function slightly differently.
A Cash Balance Plan is a modern variation on the DB plan that looks and feels more like a 401(k). Unlike traditional Defined Benefit Plans, which calculate retirement benefits based on age, service, and salary history, Cash Balance Plans credit each participant with an annual contribution and an interest credit, creating a clear, account-style benefit. Both structures allow much higher contributions than 401(k) or profit-sharing plans alone, but Cash Balance Plans are often preferred for their flexibility, portability, and clarity for participants, while traditional DB plans remain a viable option for businesses seeking a guaranteed payout formula.
For those who prefer the certainty of a guaranteed lifetime payout, traditional Defined Benefit Plans remain a viable alternative. These days, however, most owners find Cash Balance Plans provide the ideal balance of high contribution limits, tax efficiency, and plan flexibility.
DB and Cash Balance plans are designed for business owners and key executives who want to accelerate retirement savings and significantly reduce taxable income. These plans’ structures allow contributions well beyond traditional limits, creating long-term wealth and immediate tax advantages.
When paired with a 401(k) Profit Sharing plan, they deliver powerful owner benefits while satisfying regulatory standards.
Case Story:
A 55-year-old business owner earning $400,000 implemented a Cash Balance plan alongside a 401(k) Profit Sharing plan. This allowed over $250,000 in annual contributions, reducing taxable income by six figures each year. Over 10 years, the strategy built more than $2.5 million in retirement savings while generating more than $1 million in tax savings.
Case Story:
A medical practice wanted to reward its senior physicians while still passing IRS nondiscrimination testing. By layering a Defined Benefit plan with a 401(k) Profit Sharing plan, the partners contributed significantly more toward their own retirements while still providing meaningful benefits for staff. The structure met all compliance requirements and became a powerful retention tool for the practice’s top talent.
For business owners, a well-designed pension plan can be one of the most effective tools to accelerate retirement savings and reduce taxable income. But unlike a 401(k), Cash Balance & DB plans are complex, tightly regulated, and require multiple experts to establish and maintain. Here’s what to expect at each stage.
Contribution Limits are determined annually by the actuary based on benefit formulas, participant ages, and IRS funding rules.
Employer contributions are deductible in the year they’re made. High-earning owners often deduct hundreds of thousands annually while accelerating their retirement savings.
Your CPA, working hand in hand with the Retirement Plan Consultant and Wealth Advisor, ensures contributions flow correctly through business returns and align with your overall tax strategy.
A Defined Benefit plan can create extraordinary value for business owners when managed with precision and expertise. Success depends on a coordinated team: the RPC, actuary, ERISA attorney, wealth advisor, recordkeeper, trustee, and CPA each play a distinct and essential role.
At Nydia Retirement Solutions, we work at the center of this ecosystem, bringing the experts together and ensuring every piece operates smoothly. The result: predictable benefits for employees, maximized tax savings for employers, and a plan that runs seamlessly year after year.
| Role | Responsibilities | Deliverables | Importance |
|---|---|---|---|
| Plan Sponsor | Establishes and funds the plan | Contributions, oversight | The reason for the plan, the plan sponsor misses out of valuable tax savings without a well-structured DB plan. |
| Retirement Plan Consultant (RPC/TPA) Actuary | The technical expert who determines how much must be contributed each year to keep the plan funded and compliant | Plan design, contribution calculations, statement filing and support. | Without proper guidance, a DB plan can become underfunded, noncompliant, or fail. |
| Wealth Advisor | Investment management | IPS, performance reporting, portfolio oversight. | Without oversight and guidance, plans can fall victim to misaligned investments or funding shortfalls. |
| CPA | Tax optimization | Deduction confirmation, contribution timing, correct IRS and DOL filings. | Audits, noncompliance and loss of potential tax savings can occur if the CPA is not part of the holistic view of the goals of the plan. |
| Trustee | Safeguards plan assets, fiduciary oversight | Trust account management, Form 5500 signatures. | Trustees are required for all DB plans. Without them you risk fiduciary liability or possible misuse of plan assets. |
| Recordkeeper | Operational accuracy | Participant records, statements, filings support | Risk of errors in benefits, inaccurate filings with recordkeepers are not aligned. |
| ERISA Attorney | Legal compliance | Plan documents, amendments | Attorneys ensure the plan continues to be qualified for the deductions that drive its value. |
Defined Benefit plans are set up for lifelong value. At the initial consultation of these plans we often address concerns about consistent maintenance and oversight, legacy planning within our own organization and what happens at each lifecycle stage of the plan. While each business owner’s questions are slightly different and every plan is designed for your unique situation, here is an overview of a typical Defined Benefit plan lifecycle.
