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Cash Balance (CB) plans are retirement plans that blend the high contribution limits of defined benefit plans with the clear account structure of defined contribution plans.
They ensure guaranteed benefits, predictable growth and expenses, and tax-deferred savings, offering advantages to business owners and allowing high-income individuals to save significantly more than traditional 401(k)s.
In this article, we break down Cash Balance plan contribution limits for 2025, explore the pros and cons of Cash Balance plans, and explore why businesses may want to combine Cash Balance plans with a traditional 401(k) to enable greater tax-deferred savings.
| Age | 401(k) Elective Deferral | Profit-Sharing | Max Cash Balance Contributions | Combined Plan Total |
| 35 | $23,500 | $46,500 | $93,000 | $163,00 |
| 40 | $23,500 | $46,500 | $120,000 | $190,000 |
| 45 | $23,500 | $46,500 | $153,000 | $223,000 |
| 50 | $31,000 | $46,500 | $197,000 | $274,500 |
| 55 | $31,000 | $46,500 | $253,000 | $330,500 |
| 60 | $31,000 | $46,500 | $324,000 | $405,250 |
| 65 | $31,000 | $46,500 | $336,00 | $413,500 |
As displayed in this table, the maximum Cash Balance plan opportunity increases with age (up to $336,000 in 2025). Coupled with the maximum DC amounts from elective deferrals and profit sharing, the table shows the maximum deductible contribution opportunity available across all qualified retirement plans.
While it may be appropriate for some key employees to have contributions at the highest levels, it may not be for others. The flexibility built into the overall program is designed to meet the individual needs of each key employee, and contributions typically vary based on a participant’s age, compensation level, and/or employment group.
It should also be noted that Cash Balance plans require the support of an actuary, as plan contributions are determined by actuarial calculations.
The amount that can be contributed on behalf of business owners or partners is impacted by the level of benefits provided for the staff. In general, contribution levels need to be in the range of 5.0% to 7.5% of pay.
Because many businesses already provide benefits at this level, there is typically no added cost for establishing a Cash Balance plan. If the staff contribution is not within the stated range, adopting a Cash Balance plan may require additional DC contributions.
It should also be noted that not all Cash Balance plans are created equal. Selecting the right design is crucial for ensuring predictable tax savings and sustainable contributions. There are two types of Cash Balance plans:
Fixed-Rate Cash Balance: Uses a fixed interest crediting rate (e.g., 5% or the 30-year Treasury rate) for steady, consistent growth.
Market-Based Cash Balance: Ties interest credits to actual investment performance, allowing account balances to grow with market returns.
While fixed-rate plans may seem straightforward, they also introduce challenges for plan sponsors, as the fixed crediting rate often doesn’t align with actual investment returns, creating a mismatch between asset growth and account balances. Understanding these structural differences is key to selecting the most effective and sustainable retirement plan strategy.
Though Cash Balance plans offer significant advantages, they may not be right for every business. Below are a few of the key advantages and disadvantages to consider when determining whether a Cash Balance plan is best for your organization.
Tax-deferred status: Participants do not pay taxes on their retirement savings until withdrawals are made, and employers’ contributions are tax-deductible when made, reducing your organization’s taxable income.
Larger contributions/accruals: As shown above, Cash Balance plans are not subject to the same contribution limits and rules as 401(k) or IRA plans.
Increased visibility: The account structure of cash balance plans provides similar transparency to a 401(k) plan, allowing participants to watch as their account grows each year.
Flexible payout options: Participants can choose a lump-sum payout that can be rolled over into IRAs or other retirement plans for continued tax-deferred growth, or they can convert some or all of their balance into a lifetime annuity to provide a guaranteed and steady income stream throughout retirement.
Greater protection for participants: Cash balance plans benefit from enhanced protection under the Employee Retirement Income Security Act (ERISA), which safeguards participants' accrued benefits from bankruptcy, lawsuits, and creditors.
Lack of individual investment discretion: The plan sponsor makes the investment decisions, and the returns generated are shared among all plan participants.
Limited flexibility to change contribution levels: While employees/participants can’t change their benefit accruals each year, many plan sponsors will amend the plan every three to four years to allow participants an opportunity to modify their benefit accrual level.
Restrictions on accessibility: Unlike 401(k) plans, which may offer loans or hardship withdrawals, cash balance plans do not offer such flexibility
Additional costs to maintain: The complexity of cash balance plans can lead to higher administrative costs.
Additional rules: Cash balance plans come with their own set of rules and restrictions, requiring an actuary to oversee the plan
For more information, see our complete guide to Cash Balance plans.
Cash Balance plans and 401(k)s offer different approaches to retirement. However, they are not mutually exclusive. Organizations looking to deliver significant retirement savings opportunities while also providing flexibility can consider implementing both plans to offer the best of both worlds. This is one of our preferred approaches at October Three, as our O3 PRIME program combines the advantages of DC and DB plans, while prioritizing the four pillars of a sustainable retirement program. Start Designing Your Plan Today Whether you need to reward key executives, reduce tax exposure, or boost retention with long-term wealth-building benefits, October Three can help. Request your free Cash Balance illustration today.