Understanding the Maryland Saves Program: A Small Business Owner’s Guide

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Table of Contents:  Introduction The Maryland Saves Program: An Overview Why Choose the Maryland Saves Retirement Program? Who Is Eligible for the Maryland Saves Program? The Benefits to Employees: A Closer Look How BlueStone’s Human Resources Consulting Services Can Help? MarylandSaves FAQs: Maryland’s State-Mandated Retirement Plan Key Takeaways In the growing world of Maryland’s small … Read more

The Strategic Role of the CFO

The strategic role of the CFO

The chief financial officer of a company has always had a seat at the table, but the current business environment combined with changes wrought by the pandemic make the role even more important. CFOs, who are already dealing with the perfect storm of rising prices, higher interest rates, continuing supply chain issues and labor shortages, … Read more

Is 401(K) Auto Enrollment Right For Your Company?

401K Retirement - BlueStone LLC

Traditionally, employees have to opt into retirement plans and make their own decisions about contributions. But there’s another possibility: automatic enrollment in a 401(K). If they choose to enroll their staff automatically, companies have three options: Basic 401(K) auto enrollment, also called an “Automatic Contribution Arrangement” (ACA) Employees are automatically enrolled in the 401(k) plan … Read more

IRS Announces 2022 Limits for Retirement Plans

Retirement Plan - BlueStone LLC

The IRS has announced the new retirement plan numbers for 2022. Retirement limits for 401(k) and similar plans are up. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. IRA limits have changed for certain savers. If during the … Read more

What Is a Money Purchase Pension Plan?

What Is a Money Purchase Pension Plan?

A money purchase pension plan is an employee retirement benefit plan that requires companies to contribute a specific percentage of an employee’s salary each year, regardless of the firm’s profitability. Because of this, money purchase plans can be attractive options for employers to attract and retain key employees, though they can be pricey for firms … Read more

Rethinking Your Employee Benefits Strategy

Rethinking Your Employee Benefits Strategy

In the past, as long as you provided health insurance and retirement benefits, your benefits were considered competitive. Now, the pressure is on employers to supply more diverse options. Employee-friendly startups keep getting more creative with their benefits packages. Further, the federal government, states and localities are mandating more employee benefits than ever. Consequently, it’s … Read more

Cash Balance Plans: Defined-Benefit with a Twist

Cash Balance Plans: Defined-Benefit with a Twist

Both individuals and the companies they work for continue to explore new ways to address the finances of retirement. One option is the cash balance plan. It works like a pension plan in that workers can get a lifetime annuity. However, unlike a pension plan, a cash balance plan creates an individual account for each covered employee, complete with a specified lump sum. And it offers potential savings for employers.

The cash balance plan assumes a combination of employer contributions and compound interest over time. When employees retire, they can either take the lump sum or commit to an annuity that pays a portion of the sum in regular checks. Employer contributions are often between 5% and 8%, compared with the 3% employers typically contribute to 401(k) plans. Participants also receive an annual interest credit, which may be set at a fixed or variable rate, based on the 30-year Treasury rate.

With a cash balance plan, the amount of money an employee can expect in retirement is defined. The employer, not the employee, bears the risk of market fluctuations — unlike a 401(k) in which the employee bears the risk of a market downturn that can wipe out savings.

However, cash balance plans are insured and must offer the option of a lifetime annuity. Owners can change or freeze a pension plan, but they can’t renege on benefits employees already have earned. Most of the funds in defined benefit plans are federally insured through the Pension Benefit Guaranty Corporation, a government agency.

If an employee decides to take benefits from a cash balance plan as a lump sum, it can be rolled over into an IRA or a new employer’s plan. 

Business owners who establish a cash balance plan for themselves and their employees will find much higher contribution limits than they’d get with a 401(k). This can be a real lifesaver for those who need to make sizable catch-up contributions to prepare for retirement. Contribution limits for cash balance plans are based on age. These are pretax contributions and compare favorably with a 401(k), in which total employer and employee contributions have much lower limits.

Having a cash balance plan in addition to a 401(k) can help retirement savers lower their tax bills and increase their retirement funds. Cash balance plan participants get regular statements explaining the hypothetical value of the retirement account as well as the money they can expect to have in retirement. If workers choose an annuity, they have less control but enjoy the peace of mind that comes from knowing they can’t overspend and leave themselves with nothing in old age.

Of course, employees may face reduced benefits if the company runs into difficulties later. That’s why some employees choose to take their benefits as a lump sum and roll it over into an IRA while they can, taking long-term responsibility for their retirement. If you choose a rollover, you’re taking the responsibility to make your benefits last for the rest of your life.

Whether you’re an employee or a business owner, call us to find out more about cash balance plans and how they can help you.

If you have any questions about this information please contact BlueStone by clicking here.