Small-business owners are driving a continuing increase in the adoption of cash balance retirement plans, and those plans are leaving growth of new 401(k)s in the dirt.
According to the latest cash balance research report from Kravitz, Inc., which designs cash balance plans, the number of new plans increased in 2015, the most recent year for which complete IRS Form 5500 is available, by 17%, while 401(k)s only grew by 3%. The industry only expected an estimated growth rate of 12% to 15% in the sector.
In addition, total assets in cash balance plans expanded to $1.1 trillion, as they’ve logged double-digit growth every year since 2001. In fact, over the past 15 years, cash balance plans — driven by small-business owners — have increased from 2.9% to 34% of all defined benefit plans. Between 2010 and 2015 alone, the nationwide growth rate of new plans hit 152%.
A whopping 92% of cash balance plans are in place at companies with fewer than 100 employees, as smaller and midsize companies look for ways to decrease risk and cost volatility. The plans not only offer higher contribution limits seen in traditional defined benefit plans, but also greater flexibility, more like that seen in a 401(k). They also provide tax advantages.