2014 National Cash Balance Research Report

Source: Kravitz, 2014

• The Cash Balance Plan market surged 22% versus a 1% increase in number of 401(k) plans: Despite a strengthening economy, the 401(k) market remained flat between 2011 and 2012, the most recent year for which IRS data is available. In contrast, the number of Cash Balance Plans grew 22%, surpassing industry projections of a 15% annual increase.
• Cash Balance Plans now make up 25% of all defined benefit plans, up from 2.9% in 2001: The rise of Cash Balance Plans coincides with steady decline in traditional defined benefit plans, a topic explored in more detail on page 3 of this report.
• Small and mid-size businesses are driving Cash Balance growth: 87% of Cash Balance Plans are in place at firms with less than 100 employees; the highest growth is in those with 25 or fewer employees.
• Companies more than double contributions to employee retirement savings when adding a Cash Balance Plan: The average employer contribution to staff retirement accounts is 6.3% of pay in companies with both Cash Balance and 401(k) plans, compared with 2.6% of pay in firms with 401(k) alone.
• California and New York have the most plans, while the fastest growth is in Texas and Florida: California and New York account for 23% of all Cash Balance Plans, but many other regions demonstrate faster growth in adopting new plans.
• Actual Rate of Return plans gain popularity: IRS regulations released in 2010 allow many alternatives to traditional safe harbor rates. Many larger Cash Balance Plans are now using “Actual Rate of Return” to reduce investment risk for the employer. …

…In just over a decade, Cash Balance Plans have increased from less than 3% to 25% of all defined benefit plans. Traditional defined benefit plans have been steadily declining since the mid-1980s, due to a complex array of risk issues, runaway costs, and major changes in workforce demographics. Some larger corporations converted existing defined benefit plans to Cash Balance, while hybrid plans also became increasingly popular with small to mid-size businesses….