Hybrid Plans Proliferate, Employer Contributions to Them Grow
Hybrid plans have proliferated and employer contributions to them have increased, says a recent report.
More precisely, from 2015 to 2016, there was a 15% increase in the number of cash balance plans — also known as “hybrid” plans — which combine the high contribution limits of traditional defined benefit plans and the flexibility and portability of 401(k) plans. In addition, says Ascensus company Kravitz, Inc. in its 2018 National Cash Balance Research Report, employer contributions to those plans grew by 30% in that same period. Kravitz cites figures from this period because 2016 is the most recent year for which a complete year of data from the IRS is available.
Highlights of the report include the following.
Cash Balance Plans
- The number of active cash balance plans increased to 20,452 in 2016.
- Just over 90% of cash balance plans are found at employers with fewer than 100 employees.
- Slightly more than half of cash balance plans — 57% — are offered by employers with 10 or fewer employees.
- Cash balance plans were most common among employers in the medical, dental and legal sectors.
- The number of cash balance plans is growing steadily among employers in the finance, manufacturing, retail and technology sectors.
- Employer contributions to cash balance plans grew from $29.3 billion in 2015 to $38.2 billion in 2016, a 30% increase.
- The average employer contribution to retirement accounts was 6.9% of pay among employers that offered 401(k) plans as well as cash balance plans; the average contribution was 4.7% amond employers that offered only a 401(k).
Kravitz President Daniel Kravitz offered some explanations. In a press release, he says, “Cash Balance plans are particularly appealing to small business owners who need to catch up on delayed retirement savings.” He adds, “Employers also typically increase contributions to employee accounts 50% or more when adding a cash balance plan, and that’s a vital competitive edge in a very tight labor market.”