New rules by the Treasury Department and IRS are helping two products — cash balance plans and qualifying longevity annuity contracts — become particularly attractive retirement planning options.
A new analysis by the Employee Benefit Research Institute finds that QLACs can provide an effective longevity hedge for boomers and Gen Xers, while a survey of hybrid plans by the ASPPA College of Pension Actuaries predicts a "substantial increase" in new cash balance plans being adopted by small businesses.
QLACs are annuities that begin paying out at an advanced age, such as 80 or 85.
Cash balance plans, also referred to as hybrid plans, are basically defined benefit plans with defined contribution plan characteristics. In July, the IRS issued final regulations adding cash balance plans to its list of preapproved retirement plans, making it easier and more efficient for small businesses to add them.
Cash balance plans are being hailed as an efficient way for small-business owners to help prepare for their retirement.
The College of Pension Actuaries' survey, conducted during summer 2014, yielded responses from 128 actuaries who currently work with more than 15,000 defined benefit and cash balance /hybrid plans.
The actuaries surveyed said they anticipated 2,100 new cash balance plans on top of a current base of 5,600 plans administered.
More than half (55%) of respondents had dealt with the termination of an existing plan and its replacement, or restart, with a cash balance plan in the last five years. About one in 10 (11%) had dealt with 10 to 20, while 3% of respondents had dealt with more than 20, the survey says.
As of 2012, IBM, AT&T and Boeing all had cash balance plans, whose liabilities are more predictable than traditional pension plans.
"ACOPA actuaries support a large and rapidly growing constituency of cash balance plans — over 5,600 cash balance plans currently," said Andrew Ferguson, a member of the ACOPA Leadership Council, in a statement.