Cash Balance Plan—Help Maximize Your Retirement Benefits
Dec 09, 2025
A cash balance plan is a defined benefit plan with much of the flexibility and portability of a defined contribution plan. The defined benefit characteristics allow for larger tax-deductible contributions and require minimum funding and a promise to pay benefits.
But unlike traditional defined benefit plans, benefits are communicated as notional or hypothetical account balances and are generally easier for participants to understand.
How Does It Work?
- Hypothetical Account: The firm makes annual contributions to the plan. Those contributions and interest are credited to participant hypothetical account balances.
- Retirement Benefits: The hypothetical account balance can be converted into a monthly benefit (annuity) payable at retirement or paid as a lump sum.
- Pooled Investments: Employers make all investment decisions from the Program’s platform of investments and generally invest in assets in a manner intended to track the plan’s stated interest credit.
- Required Contributions: Employer contributions are required, and the annual amount must not be less than the minimum amount determined by an actuary.
- Combo Plans: A cash balance plan can be in addition to a 401(k) or profit sharing plan to allow for even higher savings.
Exhibit 1 shows how money comes in and goes out of a cash balance plan.
How Should Contributions Be Invested/Managed?
- Employer is responsible for the selection of investments from the Program’s platform of investment options.
- Employer contributions to the plan will be held in a trusteed investment account.
- Employers can utilize an investment strategy meant to achieve an investment return equivalent to the interest rate set forth in the plan document
A Potential for More Savings
Exhibit 2 provides an example of a cash balance plan that credits 4% of compensation per year with an interest credit of 5%. The illustration only shows the first 3 years. Year 1 shows a $4,000 fixed contribution with $100,000 compensation. Year 2 shows a $4,200 fixed contribution, $200 interest credit and $105,000 compensation. Year 3 shows a $4,400 fixed contribution, $420 interest credit and $110,000 compensation. This results in a total account balance of $13,220 over 3 years.
Asset accumulation in cash balance plans can become an important part of an individual’s retirement planning. The maximum annual dollar amount that may be credited is related to the age of the participant and can potentially exceed $2 million in some circumstances.1
Exhibit 3 highlights potential contributions under a combination 401(k) and cash balance plan. In this example, the owner is able to contribute more than 60% of compensation by making contributions for the employees of approximately 7.5% of pay. This is a hypothetical example dependent on specific assumptions and used for illustration purposes only.
| Employee | Age | Salary | 401(k) Employee Contribution | Profit Sharing | Cash Balance Credit | Total 401(k) Employee Contribution |
|---|---|---|---|---|---|---|
| Owner | 55 | $360,000 | $32,500 | $21,000 | $175,000 | $196,000 |
| Employee 1 | 25 | $30,000 | $0 | $1,650 | $600 | $2,250 |
| Employee 2 | 30 | $25,000 | $500 | $1,925 | $700 | $2,625 |
| Employee 3 | 35 | $40,000 | $1,500 | $2,200 | $800 | $3,000 |
| Employee 4 | 45 | $45,000 | $3,000 | $2,475 | $900 | $3,375 |
| Employee 5 | 55 | $50,000 | $5,000 | $2,750 | $1,000 | $3,750 |
| % of contribution to owner | 65.63% | 97.77% | 92.89% |
1 For illustration purposes only. Refer to your cash balance plan document for fixed contribution and interest credit details.
The ABA Retirement Funds Program has been providing affordable retirement plans to the legal community for over 60 years. It is organized as an Illinois not-for-profit corporation and is dedicated to providing retirement services exclusively to the legal community. It currently services nearly 3,900 law firm retirement plans and bar associations and has approximately $7.7 billion in assets (12/31/2024).
Our Cash Balance Product Partner: The Hilb Group
The ABA Retirement Funds Program (“Program”) is working with The Hilb Group to streamline the installation of and maintain ongoing services for certain plan design options.
Cash Balance Plan services and fees provided by The Hilb Group:
- Plan Design Consulting
- Legal Plan Documents Restatements
- Participant Distribution Packet
- Plan Amendments
- IRS Application for Determination Letter
- 401(k) Cross-tested Plan Design Services
Contact us for more information about services and fees.
Please read the Program Annual Disclosure Document (April 2025) carefully before investing. This Disclosure Document contains important information about the Program and investment options. Contact us at: abaretirement.com/contact.
Voya Financial Partners, Voya Financial Advisors and Voya Retirement Advisors are members of the Voya family of companies (“Voya”). Voya, the ABA Retirement Funds, Mercer Trust Company, Charles Schwab & Co., Inc., the Hilb Group, and state and local bar associations are separate, unaffiliated entities, and not responsible for one another’s products and services.
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