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  • DBP/Cash Balance Plan fund options

    Hello.  I am looking for some guidance regarding fund options for our small sub-specialty group's DBP/CBP.

    Our stated goal/actuary yield objective within the plan is a 3% yield.  We have a small group (4 docs, 3 employees) and plan on only running this plan for a few more years.

    The plan was initiated about 1-2 years ago and we plan on running it for around three to four more years then taking a year or two off as one doc may leave the the plan and we consider adding another doc.

    Because we have a short term horizon on this plan and one partner potentially exiting, we did not want to be heavily waited in equities or a total stock market fund due to concern about not having enough time to recover from a fluctuation in the market should it dip significantly over the next few years.  However, bond yields have been pretty low as well.

    Without having all the info directly in front of me, I believe last year we had used a mix of high grade corporate bonds and treasury bonds and this year we are thinking about using VFSTX rather than picking individual bonds.

    Given the above situation (~3 year time frame, hoping for 3% per year yield, certainly we're OK with slightly less yield for more security - at the cost of having to "over fund" the plan to make up loss in yield), what would you look to invest in?

     

     

     

  • #2
    Dearest Kon, wherefore art thou today?
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Bump - anyone want to take a stab at this?

      Comment


      • #4




        Hello.  I am looking for some guidance regarding fund options for our small sub-specialty group’s DBP/CBP.

        Our stated goal/actuary yield objective within the plan is a 3% yield.  We have a small group (4 docs, 3 employees) and plan on only running this plan for a few more years.

        The plan was initiated about 1-2 years ago and we plan on running it for around three to four more years then taking a year or two off as one doc may leave the the plan and we consider adding another doc.

        Because we have a short term horizon on this plan and one partner potentially exiting, we did not want to be heavily waited in equities or a total stock market fund due to concern about not having enough time to recover from a fluctuation in the market should it dip significantly over the next few years.  However, bond yields have been pretty low as well.

        Without having all the info directly in front of me, I believe last year we had used a mix of high grade corporate bonds and treasury bonds and this year we are thinking about using VFSTX rather than picking individual bonds.

        Given the above situation (~3 year time frame, hoping for 3% per year yield, certainly we’re OK with slightly less yield for more security – at the cost of having to “over fund” the plan to make up loss in yield), what would you look to invest in?

         

         

         
        Click to expand...


        I don't like to see plans terminated after 5 years, especially if you want to restart it again for the same practice later on. You only get one such opportunity to terminate during the lifetime of the plan. The termination costs are still there, and it is a hassle. You might be better off just running it with whoever wants to contribute rather than terminate as there is the tax deduction benefit, but that's a business decision.

        A CB plan is an ERISA plan, so which specific investments to select is a fiduciary decision that should be made by the plan fiduciaries in charge of managing investments, and it should be documented (ideally in an investment policy statement). Without knowing the specifics of your plan, its funding status, etc., it is impossible to give you any good advice as everything depends on the details of your specific plan. With a 3% you shouldn't have anything but bonds in it to minimize over- and under-funding issues even if you want the plan to run for longer periods of time (just as a prudent risk management approach). It is best to simply tilt your own personal 401k allocation to more stocks if you want to balance out the bonds in the Cash Balance plan, and this will always work as everyone's asset allocation is different, but taking the risk out of a group/pooled account is definitely a prudent approach vs. trying to shift allocation around (in the CB plan itself) in anticipation of various events (such as termination).

         

         

         
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

        Comment


        • #5







          Hello.  I am looking for some guidance regarding fund options for our small sub-specialty group’s DBP/CBP.

          Our stated goal/actuary yield objective within the plan is a 3% yield.  We have a small group (4 docs, 3 employees) and plan on only running this plan for a few more years.

          The plan was initiated about 1-2 years ago and we plan on running it for around three to four more years then taking a year or two off as one doc may leave the the plan and we consider adding another doc.

          Because we have a short term horizon on this plan and one partner potentially exiting, we did not want to be heavily waited in equities or a total stock market fund due to concern about not having enough time to recover from a fluctuation in the market should it dip significantly over the next few years.  However, bond yields have been pretty low as well.

          Without having all the info directly in front of me, I believe last year we had used a mix of high grade corporate bonds and treasury bonds and this year we are thinking about using VFSTX rather than picking individual bonds.

          Given the above situation (~3 year time frame, hoping for 3% per year yield, certainly we’re OK with slightly less yield for more security – at the cost of having to “over fund” the plan to make up loss in yield), what would you look to invest in?

           

           

           
          Click to expand…


          I don’t like to see plans terminated after 5 years, especially if you want to restart it again for the same practice later on. You only get one such opportunity to terminate during the lifetime of the plan. The termination costs are still there, and it is a hassle. You might be better off just running it with whoever wants to contribute rather than terminate as there is the tax deduction benefit, but that’s a business decision.

          A CB plan is an ERISA plan, so which specific investments to select is a fiduciary decision that should be made by the plan fiduciaries in charge of managing investments, and it should be documented (ideally in an investment policy statement). Without knowing the specifics of your plan, its funding status, etc., it is impossible to give you any good advice as everything depends on the details of your specific plan. With a 3% you shouldn’t have anything but bonds in it to minimize over- and under-funding issues even if you want the plan to run for longer periods of time (just as a prudent risk management approach). It is best to simply tilt your own personal 401k allocation to more stocks if you want to balance out the bonds in the Cash Balance plan, and this will always work as everyone’s asset allocation is different, but taking the risk out of a group/pooled account is definitely a prudent approach vs. trying to shift allocation around (in the CB plan itself) in anticipation of various events (such as termination).

           

           

           
          Click to expand...


          This is greatly appreciated.

           

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