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Cash Balance Plan Vs Investing in Open Stock Market

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  • #16
    I've heard arguments made both ways on catch up intervals (by people in my own group).  Assuming the target benefit is reasonable, another argument in favor of shorter catch up intervals, is that it will almost certainly force you to more effectively buy low and with more tax deferred $.  I know you probably don't need the behavioral influence in your other investments, but being forced into buying low with more tax deferred $ is pretty effective in this setting.  It may also minimize your "buy high" as your caught up plan will bank more surplus in good times, during which you can decrease contributions if the plan calls for it.  One could probably model the overall return with different catch up intervals and I bet the shorter interval would come out on top.


    • #17
      Rex, my goal in life is to turn tax deferred money into tax free money!!!  Tomato Tomahto

      Perhaps the otherwise incompetent Donald Trump will provide that window.  50K+ standard deduction.  Wowsers.  Early retirees, fire up the Roth Conversion train.




      • #18
        Here is 401k/PS Cash balance limits:


        • #19

          alexDDS:  I don’t think so.  By law, you must catch it up.  What many fail to consider is that these catch up contributions are no big deal in the early years, but lets say that your account has grown to 500,000, the market goes down 30%, and your plan does not have a cushion surplus.  You could be on the hook for a 30% + defined target (5%) catch up, that would be something like $175k. almost 15k extra per month.  Granted that’s pre-tax, so it will only feel like another maybe 8-9K/month, but still a wallop if you haven’t budgeted for it.  Great to “buy low” with tax free dollars if you can afford it.  If you can’t it may force you to temporarily suspend you 401k contributions.
          Click to expand...

          That is why your AA 60/40 is not conservative, its most aggressive for the CB plan portfolio . Sample portfolio planning questionnaire attached:


          • #20
            One more :


            • #21
              I see. The plans I've seen usually have an upper limit contribution per year, and that will naturally decrease future contributions necessary (outside of a crash of course).

              For those asking about how long you have to make it up, I believe WCI said his plan had to make up 2008/9 over a 5 year period after applying the surplus, so it was not that bad.


              • #22
                WCICON24 EarlyBird
                I guess aggressive vs conservative is very relative when it comes to DB plans.  I get why many are 50-100% bonds/fixed income to minimize volatility and accommodate the older participants, but how many in their 40s would want to be in a 50+ bonds portfolio.  Certainly not me.  I'd wager many on this board will carry 60/40 or even more equity heavy portfolios into retirement or even until death.

                If the DB plan ultimately yields you its performance (net of fees) after considering catch up payments, the more equity exposure the better for the younger workers (provided you can handle the catch up payments and heartburn).

                60/40 seems an ideal compromise to me, particular if one sets their target benefit higher at say 5%.