Cash balance plans paired with 401(k) profit sharing offer powerful flexibility. With thoughtful design, TPAs can align retirement strategies to each client’s business and personal goals—maximizing savings while staying compliant.

The typical cash balance plan design strategy is to pair a cash balance plan with a 401k profit sharing plan and then consider both plans together for plan design, non-discrimination testing and other purposes. But beyond this basic model, opportunities abound to customize the design to meet the needs and budget of the plan sponsor.

To fully realize the potential of a cash balance plan, consider your client’s business – ownership, operations, staff, budget, etc. And just as important, the client’s personal goals – current compensation vs long term savings, plans for retirement, disposition of the business after he exits and so on.

Here are just a few possible plan designs using this combo plan strategy:

Small professional practice with annual goal for principals

A small professional practice (3 owners, 12 staff) wants to provide annual retirement contributions of $150,000 to the principals.  This can be done by adding a cash balance plan to the existing 401(k) plan.

Each owner defers $31,000, receives a $9,000 profit sharing contribution and a $110,000 cash balance credit for a total of $150,000.

Contributions for staff are the amounts needed to pass non-discrimination testing, which in this case is 7.5-9% of each employee’s compensation.  (Results for any given plan depend on actual demographics.)

Consultant with no employees desires to maximize tax-favored retirement savings

Owner (age 63) recently retired from his corporate job and now works as an independent consultant. He grosses $300,000 and has minimal expenses. 

He establishes a 401(k) plan in which he makes the maximum deferral and receives a $5,000 profit sharing contribution as well as a cash balance plan in which he receives a $135,000 cash balance credit.

(Contribution amounts are dependent on age, income and related factors.)

Owner with goal of maximizing tax-favored retirement savings over his career

Owner (age 46) of a construction business has been maximizing his contributions to the 401(k) plan for several years. He now wants to increase his total contributions but also to continue to take maximum advantage of the 401(k) plan.

By adding a cash balance plan, the owner can continue to receive the maximum 401(k) and plan plus an additional $60,000 in the cash balance plan.

Contributions for staff are the amounts needed to pass non-discrimination testing, which in this case is 8% of staff payroll. This compares favorably to the 6% of staff payroll provided in prior years.

Small business owner with goal of maximizing deductible retirement plan contributions

Owner (age 55) of a media business with one employee wishes to maximize her retirement plan contributions over the next few years.  She establishes a 401(k) plan and a cash balance plan.

She defers $31,000, receives a $46,500 profit sharing contribution and a $248,500 cash balance credit for a total of $326,000.

Contributions for one employee (age 33) are the amounts needed to pass non-discrimination testing, which in this case is 12% of compensation or about $9,000. (Results for any given plan depend on actual demographics.)

The combo CB/401k design (and the responsibilities that come with it) is not for every client.  But for those for which it works, the rewards can be great.

Aegis Pension Services is a trusted partner for TPAs looking to outsource defined benefit & cash balance (DB & CB) plan design, testing, and administration. Our team brings deep actuarial expertise to even the most complex DB and CB plans. To streamline operations and ensure accuracy at scale, Aegis—along with many other top TPAs—leverages Stax.ai, an AI-powered platform that automates compliance workflows, data processing, and plan communications. Together, Aegis and Stax.ai make it easier than ever for TPAs to expand into DB and CB services with confidence and efficiency.