Does a small business owner who has failed to save enough for retirement but who is averse to portfolio fluctuations describe anyone you know?
If so, a retirement plan you’ve probably never heard of offers a solution you might at least want to investigate.
Lo and behold, so-called “cash-balance plans,” seemingly out of nowhere, have surged in popularity, growing 22% vs. 1% for the quotidian 401(k) plans advisors work with.
That is according to the 2014 National Cash Balance Research Report, based on 2012 — the most recent year for which the IRS has complete data.
The reason advisors might be unfamiliar with the retirement option, despite an impressive level of growth occurring amid a languid economy, is the low base it comes off. By the end of 2012, there were fewer than 10,000 plans, compared with over half a million 401(k) plans.
Yet in terms of assets, the cash-balance plans are rapidly catching up, nearing $1 trillion ($859 billion in 2012), compared to about $4 trillion for 401(k)s.
How could such a small number of plans achieve such high assets?
Well, it probably helps some of those plans are sponsored by ginormous companies like IBM, AT&T and Boeing, with $54.9 billion, $45.2 billion and $28.1 billion in assets, respectively.
The list of large and familiar names is actually quite long, including not only blue chip corporations but white-shoe law firms (such as Sidley Austin and Skadden Arps) and well-known hospitals (like Sutter Health and Massachusetts General Hospital).
And while these firms give cash-balance plans their bulk, the report prepared by Kravitz, which designs and administers retirement plans, including more than 500 cash-balance plans, finds that the overwhelming majority of these plans — 87% — are in companies with fewer than 100 employees.
So what’s the appeal?