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When a conversation about retirement begins, one of the first things that comes to mind is savings. How much do you need to save to retire comfortably and sustain it?
For high-income individuals, 401(k) and profit-sharing plans remain among the most popular retirement vehicles. And though they can be effective, relying on a 401(k) alone can make it difficult to maximize retirement savings and tax efficiency. A Cash Balance plan can provide an additional, more powerful way to save for retirement while also offering significant tax advantages.
This article explores the limitations of relying solely on traditional retirement plans, the growing popularity of Cash Balance plans across industries, and how Cash Balance plans can help address some of today's most common retirement planning challenges.
401(k) and profit-sharing plans are common among professional service firms. Though they can certainly offer significant benefits, there are also a number of limitations.
Pros:
Taxes: Pre-tax contributions are deferred from income taxes until withdrawn. If you use a Roth 401(k), contributions are made with after-tax dollars, but investments grow tax-free, and all withdrawals in retirement are tax-free.
Additional contributions: Some employers will match contributions up to a percentage, bolstering savings.
Automatic savings: Contributions are pulled directly from the employee’s paycheck after they have been selected.
Portable: 401(k)s can be rolled into other 401(k)s or similar retirement vehicles if the individual changes or leaves an employer.
Cons:
Employee responsibility: The employee shoulders investment risk, meaning retirement savings are impacted by market performance.
Limited accessibility: Like other qualified retirement plans, funds are generally intended for retirement, and withdrawals before age 59½ may be subject to taxes and penalties unless an exception applies.
Longevity risk: 401(k) plans do not provide guaranteed lifetime income, meaning individuals have the potential to outlive their savings.
Contribution limits: 401(k) plans generally have lower contribution limits, making them less attractive for high-income individuals looking to save more for retirement.
Pros:
Tax advantages: Employer contributions are generally tax-deductible for the business, while employees do not pay taxes on contributions until funds are withdrawn in retirement. Investments also grow tax-deferred.
Flexible employer contributions: Employers can decide each year whether to contribute and how much to contribute, allowing them to adjust contributions based on business performance.
No employee contributions required: Employees can build retirement savings without being required to contribute their own money, making it a valuable employer-funded benefit.
Cons:
Variable contributions: Because contributions are typically tied to employer discretion and company performance, employees cannot count on receiving the same contribution every year.
Limited accessibility: Like other qualified retirement plans, funds are generally intended for retirement, and withdrawals before age 59½ may be subject to taxes and penalties unless an exception applies.
A Cash Balance Plan is a Defined Benefit plan that has been structured specifically to help business owners, partners, or key executives save significantly more for retirement than a standard 401(k) plan, while still having tax-deferred status. They are particularly popular among doctors, lawyers, professional service firms, and other individuals with consistent, high salaries. However, they are used across various industries.
Unlike a traditional Defined Benefit plan, a Cash Balance plan has the look and feel of a Defined Contribution plan, like a 401(k), where each participant has an “account” that grows each year with contribution credits and interest credits.
According to the results of October Three's 2026 Cash Balance Report:
Cash Balance plans currently outnumber traditional DB plans by nearly 2 to 1
Between 2015 and 2024, the number of Cash Balance plans increased by nearly 70%, while the number of traditional DB plans decreased by more than 50%.
Cash Balance plans see adoption across industries, with healthcare leading in total plans and manufacturing leading in the number of plan participants.
Out of all new Cash Balance plans implemented with over 100 participants since 2018, the market-based interest crediting rate is the most common plan design structure.
According to TIAA, most defined contribution plan sponsors expect demand for lifetime income solutions to increase over the next five years. LIMRA reports that U.S. annuity sales reached a record $432.4 billion in 2024, reflecting strong consumer interest in guaranteed retirement income.
Cash Balance plans answer the demand for lifetime income by offering the chance to receive the value as a lifetime annuity under more favorable conditions. This gives participants an annuity option without the 20-30% reduction in monthly income from working with an insurance company, according to October Three’s 2026 Lifetime Income Report.
Learn more about the specifics of Cash Balance plans below, including the pros and cons of a Cash Balance plan and the differences between traditional and Market-Based designs.
Alternatively, if you’re ready to jump in, you can also schedule time with our team below to learn more about how a Cash Balance plan could work for your organization.