By Paula Aven Gladych
The number of cash balance retirement plans has increased 21 percent in the past year, almost double the previous year’s 11 percent growth rate.
Cash balance plans, which also are known as hybrids, combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a 401(k) plan, according to Kravitz’s “2012 National Cash Balance Research Report.”
There were 7,064 Cash Balance Plans active in 2010, the most recent year for which IRS data is available, up from 1,337 in 2001. That’s 810 percent growth in under a decade. There are 11.1 million participants in Cash Balance Plans nationally, with $713 billion in total plan assets, the report found.
“Business owners are increasingly choosing Cash Balance Plans as a strategy to accelerate retirement savings
, enhance employee benefits, and gain a buffer against market fluctuations,” said Dan Kravitz, president of Kravitz. “IRS regulations released in October 2010 added flexibility for plan sponsors, so we expect this growth rate to continue accelerating.”
Kravitz also found that companies more than double their contributions to employee retirement savings when adding a Cash Balance Plan. The average employer contribution to staff retirement accounts is 6 percent of pay in companies with both Cash Balance and 401(k) plans, compared to 2.3 percent of pay in firms with 401(k)
The stalled economy has not deterred the adoption of new plans. Between 2008 and 2010, there was a 38 percent increase in new Cash Balance Plans, despite the lingering recession and stalled recovery.
Small businesses are driving Cash Balance growth. In its research, Kravitz found that 84 percent of Cash Balance Plans are in place at firms with fewer than 100 employees.
California and New York have the highest number of plans, while the fastest growth is in Florida, Texas and Michigan.
Since 1977, Kravitz has brought its clients the latest in design, administration, and management of corporate retirement plans.
Originally published on BenefitsPro.com