Cash Balance Plan Recs?

[janehallymayer101]

Hi,
I am considering starting a Cash Balance Plan for my solo 1099 practice, but I am having trouble locating companies/agencies that actually do this. Anybody out there have recommendations for companies to use? TIA!

[WCInovice]

There is a poster, I think Kon Litovsky is the name, here who has had excellent advice on these plans. I haven't used him but have learned from him.

Side note: with this super low interest rate environment I fear it's getting harder to hit our goal return in our cash balance plan...we still do all bonds in it but I'm not sure what options we're going to have to try to generate the 3% or so we need to yearly without taking some equity risks. We do have some potential partners cashing out in the next few years too, so a big market swing would hurt us if it swings down and we owe them on their cash out.

[NinjaDoc]

There is a poster, I think Kon Litovsky is the name, here who has had excellent advice on these plans. I haven't used him but have learned from him.

Side note: with this super low interest rate environment I fear it's getting harder to hit our goal return in our cash balance plan...we still do all bonds in it but I'm not sure what options we're going to have to try to generate the 3% or so we need to yearly without taking some equity risks. We do have some potential partners cashing out in the next few years too, so a big market swing would hurt us if it swings down and we owe them on their cash out.

Who cares if you can't meet your 3%, you get to put even more money in then right?

[jacoavlu]

Hi,
I am considering starting a Cash Balance Plan for my solo 1099 practice, but I am having trouble locating companies/agencies that actually do this. Anybody out there have recommendations for companies to use? TIA!

Schwab offers a personal defined benefit plan

https://www.schwab.com/small-busines...d-benefit-plan

[zlandar]

There is a poster, I think Kon Litovsky is the name, here who has had excellent advice on these plans. I haven't used him but have learned from him.

Side note: with this super low interest rate environment I fear it's getting harder to hit our goal return in our cash balance plan...we still do all bonds in it but I'm not sure what options we're going to have to try to generate the 3% or so we need to yearly without taking some equity risks. We do have some potential partners cashing out in the next few years too, so a big market swing would hurt us if it swings down and we owe them on their cash out.

Mine is 40/60 equity/bonds with 4% target.

While the group is liable for the CBP I make all the participating partners put aside part of their salary for their annual contribution. They are also individually responsible for any shortfall in their account. Employee side is shared equally among all partners.

We started with Kravitz (part of Ascensus) and how good the service was highly dependent on the rep we were assigned. Recently moved to Intac which is also part of Ascensus as I did not like how Kravitz and Vanguard Ascensus who handles our 401k interacted. Intac oversees both 401k and CBP now.

[Gamma Knives]

They are also individually responsible for any shortfall in their account.
.

You can do that? I thought the plan owners had to makeup any shortfall collectively.

[jacoavlu]

You can do that? I thought the plan owners had to makeup any shortfall collectively.

technically the employer is making up the shortfall. But the owners can agree and write into shareholder / partnership agreements that such items will be taken from the particular owner's "slice of the pie"

[WCInovice]

Who cares if you can't meet your 3%, you get to put even more money in then right?

I may be wrong here...but the issue is if an older partner(s) retires/cashes out, but the plan is light because equities fell and the 3% wasn't met, the younger partners have to make up that difference to make sure they are cashed out at the specified amount.

[WCInovice]

technically the employer is making up the shortfall. But the owners can agree and write into shareholder / partnership agreements that such items will be taken from the particular owner's "slice of the pie"

We probably need to look into this kind of language for my setup.

[zlandar]

I may be wrong here...but the issue is if an older partner(s) retires/cashes out, but the plan is light because equities fell and the 3% wasn't met, the younger partners have to make up that difference to make sure they are cashed out at the specified amount.

It is up to the practice how to meet that shortfall. If a plan shortfall is split equally among partners then the partners with the least amount in the CBP get screwed. I think that's an extremely unfair way to run a CBP. I manage my group's CBP and it's a pay-your-own way system.

My only experience with a CBP is with Kravitz. Near the end of the year there will be a document on the Kravitz website listing the preliminary contributions for the upcoming year. For instance 2021 prelim contribution numbers will be available in Nov-Dec 2020. I use those numbers to reduce the 2021 base salary of the participating partners so there won't be a shortfall (i.e. covid shutdown). The final contribution amounts are available in June-July 2021 along with the final estimate for each partner. I either refund or charge the difference between the prelim and final contribution amount to each partner.

For the employee side it's an equally shared business expense cost among partners. It's a very small amount compared to the partner-physician side so no cares. My group doesn't have a formal agreement on the above arrangement but since I manage a lot of the finances for the group it has not been a pressing need. I have a one page written Word document describing how the group CBP is run which I hand out to any new partners interested in participating in the CBP.

[WCInovice]

It is up to the practice how to meet that shortfall. If a plan shortfall is split equally among partners then the partners with the least amount in the CBP get screwed. I think that's an extremely unfair way to run a CBP. I manage my group's CBP and it's a pay-your-own way system.

My only experience with a CBP is with Kravitz. Near the end of the year there will be a document on the Kravitz website listing the preliminary contributions for the upcoming year. For instance 2021 prelim contribution numbers will be available in Nov-Dec 2020. I use those numbers to reduce the 2021 base salary of the participating partners so there won't be a shortfall (i.e. covid shutdown). The final contribution amounts are available in June-July 2021 along with the final estimate for each partner. I either refund or charge the difference between the prelim and final contribution amount to each partner.

For the employee side it's an equally shared business expense cost among partners. It's a very small amount compared to the partner-physician side so no cares. My group doesn't have a formal agreement on the above arrangement but since I manage a lot of the finances for the group it has not been a pressing need. I have a one page written Word document describing how the group CBP is run which I hand out to any new partners interested in participating in the CBP.

Thank you, that's helpful input.

We too put our own in as a pay-your-own way plan and split employee. We've just never had anyone leave and never hammered out how we'd handle a senior partner leaving and what to do in a short fall. We have a very friendly group and we've never had money issues/disputes before, so I *think* it may be a "pay your own shortfall" thing, but obviously we'd need that in writing.

[litovskyassetmanagement]

There is a poster, I think Kon Litovsky is the name, here who has had excellent advice on these plans. I haven't used him but have learned from him.

Side note: with this super low interest rate environment I fear it's getting harder to hit our goal return in our cash balance plan...we still do all bonds in it but I'm not sure what options we're going to have to try to generate the 3% or so we need to yearly without taking some equity risks. We do have some potential partners cashing out in the next few years too, so a big market swing would hurt us if it swings down and we owe them on their cash out.

Thank you for the plug, unfortunately I only work with ERISA plans these days, not solo plans. I do get lots of calls from solo docs though, and I try to help them out as much as I can. There is quite a bit of risk of doing solo plans, as well as higher costs involved, so I always recommend that they are a bit older before starting one, or at least they should make sure that they can max out the plan rather than drag it out with lower contributions.

You don't need to generate 3%, this is a big misunderstanding. The main goal is low volatility. Return is irrelevant, since even a relatively safe bond portfolio can return as much as 7% (which is what is happening this year by the way), so whatever return you get is fine, even if it is a small negative or a small positive return. As long as you are contributing and getting the tax deduction, this is just fine. Your CB allocation can be considered as part of each partners' overall portfolio, so looking at it this way gives you the best of both worlds: low volatility CB portfolio that is not going to care much about stock market crashes, and bond allocation to balance out the stocks, so that if the stocks fall, bonds rise. Looking at it this way will be a much healthier way to manage your CB plan, as going into stocks can become an issue especially if the plan has lots of assets. Especially for plans with lots of assets, stocks should not be included in your portfolio because there is no upside. If your return is too high, when the plan is terminated, you forfeit any return over the crediting rate, unless you keep the plan open or do some other things that might or might not work. This is not a DB plan, it is a year by year plan that the practice should have the ability to terminate quickly when either merging, dissolving or being bought out. So for that reason low volatility is much more important than trying to hit some imaginary target, especially because most such plans won't be around for longer than 10 years after all partners max them out unless you have a practice with new partners coming in at a relatively high rate to justify keeping a CB plan open for longer.

[litovskyassetmanagement]

Mine is 40/60 equity/bonds with 4% target.

While the group is liable for the CBP I make all the participating partners put aside part of their salary for their annual contribution. They are also individually responsible for any shortfall in their account. Employee side is shared equally among all partners.

We started with Kravitz (part of Ascensus) and how good the service was highly dependent on the rep we were assigned. Recently moved to Intac which is also part of Ascensus as I did not like how Kravitz and Vanguard Ascensus who handles our 401k interacted. Intac oversees both 401k and CBP now.

As someone who works extensively with Ascensus as a record-keeper, using other Ascensus companies is more trouble than it is worth. To get anywhere with this, you would need hire a TPA for the combined plan testing (Future Plan is one such company). Kravitz can do it, but it is very expensive. You also would benefit from having a TPA other than Ascensus to manage the 401k plan (Ascensus itself is a record-keeper, not a TPA). I actually try to get rid of Kravitz and/or Future Plan every time a plan comes to us with these service providers. They are not very good at all. You don't ever get to talk with the actuary, and their designs are not very good either. Future Plan and Kravitz are also crazy expensive vs. the alternative. I always recommend hiring a good TPA and an independent actuary. There are actuarial firms that specialize in working with TPAs. Your TPA knows you and your plan, and they can work with the actuary on your behalf. My experience working with Kravitz is terrible for the plans where the plan sponsor decided to stick with them. First, having independent TPA/actuary gives you access to immediate top level advice, and second, this affords checks and balances that you can't get if all of your plans are under one roof.

[litovskyassetmanagement]

You can do that? I thought the plan owners had to makeup any shortfall collectively.

This is a reply from the actuary I'm working with regarding the issue of shortfall that has a lot more details. In short, yes, individuals can (and should) make it up, but the plan is collectively responsible in case they can't:

"From the company point of view, the key is to have enough money to set aside from the partner's final payouts to fund his portion of the shortfall. It's usually not that hard unless the partner has a small buyout amount and a large CB balance. The risk to the company is that there isn't enough money to fund the departing partner's shortfall and so somebody else has to make it up or the plan has to terminate. You asked about waiting to take their distribution, and yes, that is entirely possible. The plan needs to be fully funded for any of the highest 25 paid HCEs to take a lump sum distribution. They could choose an annuity at any time, but everybody wants lump sums. So they would have to wait until the plan is fully funded before that can happen. In multiple owner plans, it's imperative that losses are funded as soon as possible for that exact reason. Imagine the scenario where the departing partner puts his share of the underfunding in but the rest of the partners don't. If that happens and then the assets decline even further, no for sure the rest of the partnership is going to pay for those investment losses because the departing partner isn't there to get the money from any longer. If the cash isn't available to fund the asset losses plus make the following year's contribution, the plan formula should be amended down until assets catch up with hypothetical account balances so people can take a lump sum distribution. If the plan is covered by the PBGC, then the remaining partners are liable to fund any shortfall. If not, then the plan could theoretically terminate and pay out each person's share to the extend funded. So let's say the plan was only 90% funded for example. Each partner would only get 90% of the money promised to him or her. But again, if the plan is large enough to be covered by the PBGC then that isn't an option and somebody has to kick in the money to get the plan back to 100% funded."

[Khart23]

I work with small business plans including cash balance. Ironically we also can use Schwab as plugged earlier. Let me know if you’d like to set up a call to discuss.