For some employers, the maximum contributions permitted in a defined contribution plan do not provide sufficient retirement benefits for highly compensated employees.  However, a combination of a New Comparability defined contribution plan and a Cash Balance defined benefit plan can provide a great solution. These are referred to as “Combo Plans.”

New Comparability Plan design is popular because it offers contribution flexibility and allows higher contributions for targeted groups, such as owners or key employees.  New Comparability can be used in any 401(k) or profit sharing plan.  Because of the flexible nature of the New Comparability design, it is subject to top-heavy and general nondiscrimination testing.

A Cash Balance Plan is an account-based defined benefit plan. It allows the flexibility of separating participants into different hypothetical allocations groups similar to a New Comparability defined contribution plan. A cash balance plan is a defined benefit plan with required annual funding. However, unlike a traditional defined benefit plan, the benefit communicated to the employee is stated as an easy to understand account balance rather than a monthly benefit payable many years in the future.

Combining the flexibility of a New Comparability plan with a Cash Balance plan is a great way to optimize plan design.  Nyhart has successfully implemented and administers this design solution for nearly 100 small employers across the country.

Combo Plan Design Considerations

• Required minimum funding for Cash Balance Plan
• Both plans subject to general nondiscrimination testing
• Higher minimum contributions in defined contribution plan when using a Combo plan design
• Demographic changes may impact annual contribution requirements
• Employee turnover may affect testing results
• Ability to increase the tax-favored benefits you offer

WHY NYHART?

Our clients regularly recognize us for our responsiveness, level of service we provide, reliability of our calculation, our attention to details, and administration services. We serve as an independent voice to our clients with unbiased advice.  Our actions show that we are client-driven and make available any of our clients as references.

DEDICATED TEAMS, DIRECT ACCESS

Each client at Nyhart has a dedicated team of actuaries, plan advisers and support staff. We provide you direct access to your team so your questions and issues can be handled confidentially by a team who knows your health care plan and can help resolve your issues.

ASK NYHART

Do you have an actuarial or benefit question or are interested in learning how Nyhart may be able to provide the long-term partnership to evaluate or manage a health care benefit plan for your company? Please call us at (317) 845-3500 or email us at connect@nyhart.com today and we will be in touch quickly.