Cash balance plans continue to gain traction among many organizations, but professional service firms in particular are taking note — law firms, medical practices, accounting/consulting groups and other closely held businesses look to cash balance plans to turbocharge tax deferral and retirement savings. In March 2025, the Wall Street Journal reported on the explosion of cash balance plans with plan assets totaling more than $1 trillion.1 However, many plans struggle in balancing the competing objectives of the tax deferred income benefit versus the investment outcome within the qualified defined benefit structure of these plans.
This is especially critical for actual market rate cash balance plans, which are emerging as a powerful and flexible alternative to more traditional designs.
Understanding Actual Market Rate Cash Balance Plans
Unlike first-generation cash balance plans, which credit participants with a fixed annual interest rate (e.g., 4% or 5%) or with a rate tied to the annual yield of Treasury bonds, actual market rate cash balance plans credit interest based on the actual performance of the plan’s investments — typically tied to a diversified portfolio. The “first-generation” cash balance plans started to emerge in earnest following the passage of the Pension Protection Act of 2006, gaining even more momentum after IRS regulations issued in 2014 clarified how these plans could safely credit interest based on actual investment performance. These updated regulations paved the road for today’s new generation of cash balance plans, addressing many of the shortcomings of its older counterpart. Actual market rate cash balance plans can be designed to:
• Eliminate the mismatch between investment returns and crediting rates
• Reduce volatility in required employer contributions
• Simplify plan funding and actuarial assumptions
• Allow for higher contributions in many cases
• Improve participant engagement, since account values grow based on real market performance
This new and improved design was a game-changer in the cash balance space, requiring a rethink of investment strategies tailored to this next generation of cash balance plans. But to unlock these potential advantages, the plan must be properly designed and expertly invested, balancing investment returns with capital preservation requirements, plan demographics and 415 limitations. That is where most advisors fall short.
The Danger of “One-Size-Fits-All” Advice
Too many cash balance plans, especially market rate plans, are thrown into generic investment strategies with little regard for plan liabilities, contribution objectives, plan demographics or crediting methodology. That kind of misalignment can lead to:
• Contribution volatility
• Missed savings opportunities for participants
• Plan design that does not meet the sponsor’s long-term goals
That is why working with an investment advisor who specializes in cash balance plans — particularly market rate plans — is essential.
How Fiducient Advisors Can Help
At Fiducient Advisors, we understand that the goal isn’t just return — it is alignment. We partner with Plan Sponsors to:
• Tailor portfolios that mirror the plan’s crediting strategy
• Design allocations that seek to maximize participants’ ability to save for retirement as they approach retirement
• Coordinate with actuaries to manage contribution levels and plan funding
• Monitor ongoing performance relative to plan obligations
• Educate stakeholders on how the plan works — and why it is so valuable
With market rate plans especially, the investment strategy could be the piece of the puzzle that makes the picture complete. So, getting it right is non-negotiable.
Ready to Put Together the Pieces of Your Retirement Puzzle?
Contact any of the professionals at Fiducient Advisors regarding your investment strategy to assess whether it aligns with your plan’s structure, especially if you are using (or considering) a market rate return design.
1The Wall Street Journal, “The Retirement-Savings Weapon Doctors and Lawyers Use to Build Wealth” March 8, 2025.
The information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.
