Annual Adoption of Cash Balance Plans Nearly Doubled

By SHRM Online staff Jul 26, 2012

A new report shows a 21 percent annual increase in cash balance "hybrid" retirement plans in the U.S. between 2009 and 2010 (the most recent year for which IRS reporting data is available), almost double the previous year’s 11 percent growth rate. Cash balance plans continued to outpace all other sectors of the retirement plan market, according to the 2012 Cash Balance Research Report from Kravitz, a provider of retirement plan management services.

There were 7,064 active cash balance plans in 2010, up from 1,337 in 2001, representing 810 percent growth in less than a decade. Moreover, there were 11.1 million participants in cash balance plans nationally, with $713 billion in total plan assets, according to the report.

Cash balance plans seek to combine the high employer contribution limits of traditional defined benefit plans with the flexibility and portability of 401(k) defined contribution plans. “Business owners are increasingly choosing cash balance plans as a strategy to accelerate retirement savings, enhance employee benefits and gain a buffer against market fluctuations,” said Kravitz President Dan Kravitz. IRS regulations released in October 2010 added flexibility for plan sponsors, so we expect this growth rate to continue accelerating.”

Small Companies Drive Plan Growth

Other key findings from the report include:

Few employers provide a stand-alone cash balance plan.Of those that offered cash balance plans, 97 percent did so in combination with one or more defined contribution plans. The most common combination was a cash balance plan with a 401(k) or profit sharing plan.

Small businesses are driving cash balance plan growth.Of all cash balance plans, 84 percent were at firms with fewer than 100 employees, with the fastest growth in companies with fewer than 50 employees.

The largest plans(those with 10,000 or more participants) typically represent traditional defined benefit plans that were converted to cash balance plans. These conversions are expected to increase as an alternative to terminating financially troubled defined benefit plans.

California and New York had the highest number of plans. California and New York together accounted for 23 percent of all cash balance plans nationally, but the fastest growth in new plans has been in Florida, Texas and Michigan.​

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