PLANADVISER - September/October 2018 - 8

practice development
Cash
Balance
Plans on
The Rise
A
dvisers who specialize in 401(k)
plans may find a recent statistic
intriguing. According to the " 2017
Cash Balance Research Report " from
actuarial firm Kravitz, an Ascensus
company, new 401(k)plans increase at
just 3% a year. But the research also
points to a market that is booming, and
proponents say it naturally complements
401(k)s: cash balance pension
plans.
" [This is] the fastest-growing plan
design in our industry-at 15% a year, "
says Dan Kravitz, president of the firm,
in Encino, California. His team has
built about 800 of the plans.
Also called " hybrid " s, as they
combine defined benefit (DB) plans
with some defined contribution (DC)
features, cash balance plans should
appeal to advisers expert in the
Employee Retirement Income Security
Act (ERISA) who want to grow their
business. They are qualified, therefore
protected, yet allow pre-tax savings
in " multiples " of what a 401(k) profitsharing
plan allows, says Stephen
Lippman, director, at Bernstein Global
Wealth Management, in New York
City. " They call them 'hybrid' because
everybody gets his own balance, and
it doesn't go up or down with interest
rates [as it would in a DB plan], " he says.
The main customers for the plans
are small businesses-typically " profitable
professional service companies "
such as law firms or independent
medical groups, with a high ratio of
owners to staff, Kravitz says. " They're
also a great way [for advisers] to get
out of the HR [human resources] room
and into the board room, " as they give
access to company owners for potential
wealth management work, he adds.
As they approach retirement, the plans
let them " turbo-charge their saving. That's
the whole crux of why they're popular. "
The plans' benefits for such owners
can be great. If, as a Bernstein study
says, Americans should now save 20%
annually to be retirement ready, highearners
must save significantly more
than under a 401(k) and a profit-sharing
plan. Moreover, many small-practice
owners have put off saving, to invest in
their business or pay off student loans,
Lippman says. As they approach retirement,
the plans let them " turbo-charge
their saving. That's the whole crux of
why they're popular. "
Advisers benefit, too, as cash
balance plans can be lucrative, sources
say. As with a 401(k) plan, the adviser
helps design the portfolio and monitors
its effectiveness, providing investment
advice, Kravitz says.
Unlike with wealth management,
" there are guaranteed contributions
coming each year, " Lippman says. " A
plan might start with $1 million and
every year give you another million
dollars. They grow much faster than
other accounts. "
Advisers must be patient at the
start, though, he adds. They may need
to analyze, with an actuary's help, the
advisability of such a plan, possibly
add an employee 401(k) to pass nondiscrimination
testing and, in some cases,
postpone full funding until the next
September 15. " It's a longer sales cycle
before the money gets invested, " which
can deter some advisers, Lippman says.
Advisers will continue to need an
actuary's aid, Kravitz says. " A good
adviser typically has a firm he feels
comfortable dealing with that he can
introduce to his client and make part
of the team. The adviser brings the
innovative plan design idea. The actuarial
firm does the design and annual
administration, and must sign off on
the annual tax return. " -Karen Wittwer
8 | planadviser.com September-October 2018
Art by Jacqueline Kaulfersch
http://www.planadviserdigital.com/planadviser/september_october_2018/TrackLink.action?pageName=8&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - September/October 2018

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