Health Insurance Plans and Alternatives for Small Businesses

Health Insurance Plans and Alternatives for Small Businesses

Employer-based health insurance costs have increased modestly since 2012 — between 3% and 5% annually for family coverage, according to a 2020 report by Kaiser Family Foundation. These changes have added up over the past decade, and employers and employees are now paying 155% of the health care costs they were paying before, even as … Read more

A Checklist for Navigating Open Enrollment

A Checklist for Navigating Open Enrollment

Before Open Enrollment – Reflect on the previous open enrollment period. Note the successes and failures and formulate a strategy for avoiding prior blunders. – Survey your employees to get a sense of what they want and don’t want in their benefits packages. They may want more personalized options, more communication or a more streamlined … Read more

When You Have an HR Department of One

Effective Small Business HR for Solo Practitioners

At a minimum, the human resources department handles: Recruiting. Hiring. Compensation. Employee benefits. Training and development. Employee relations. Employee engagement. Employee retention. Health and safety. HR compliance. To save money, many small-business owners tackle these HR and employment activities on their own, only to learn that the company is better off when they focus on … 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

Hiring in a New Era

Hiring in a New Era

As you create your company’s hiring plan for a post-pandemic world, you need to adapt to a new reality. To begin with, you will need to consider these trends: Talent shortage. There is an ongoing talent shortage in many industries, making the hiring landscape more competitive than ever before. Businesses need to assess what new … Read more

7 Key Aspects of Payroll Compliance

7 Key Aspects of Payroll Compliance

1. Federal wage and hour laws The Fair Labor Standards Act (FLSA) sets federal wage and hour standards, which are administered by the U.S. Department of Labor. These standards cover: Federal minimum wage. Overtime pay and exemptions. Work hours, including meals and rest breaks. Child labor, including permissible occupations and work hours. Recordkeeping for nonexempt … Read more

An Overview of Federal and State Overtime Exemption Laws

An Overview of Federal and State Overtime Exemption Laws

On Sept. 24, 2019, the U.S. Department of Labor issued a final rule increasing the salary threshold for executive, administrative and professional employees from $455 per week to $684 per week. These “white-collar” employees are exempt from the Fair Labor Standards Act’s overtime pay provisions. The final rule took effect Jan. 1, 2020. What the … 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.

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