If you provide investment advisory services to 401(k) plans but not to Defined Benefit (DB) or Cash Balance plans, you are certainly not alone. Many investment advisors avoid the DB plan market because the pool of prospects/candidates is much smaller than that of 401(k) plans, and the benefits of a DB plan can be difficult to articulate to employers without a reliable TPA or actuary at the table.

However, the reality is that Defined Benefit plan advisory business can be quite profitable for two key reasons:

First, a DB plan is not an “individual account plan”, so employees don’t – and can’t – direct their own investments and it isn’t necessary for the advisor to spend time away from the office conducting employee education and enrollment meetings. Instead, assets are held in a pooled account that is managed by the plan’s investment advisor.

Second, DB plans have much higher individual funding limits than 401(k) plans and tend to grow more quickly than their 401(k) counterpart. In a 401(k) plan, the annual individual contribution limit (employee + employer contributions) is $54,000 ($60,000 for those age 50+). In a Defined Benefit Plan, business owners in their 50s and 60s are usually able to contribute over $200,000 in tax-deductible contributions for themselves each year, and at a very low contribution expense for their employees.

Cash Balance plans take this a step further. Often paired with a 401(k) plan, a Cash Balance plan is a type of Defined Benefit plan that is easier for business owners to grasp because the accrued benefit is expressed as an annual account balance rather than a monthly benefit payable at retirement (“Yeah, but what’s it worth now?”). In an ideal 401(k) + Cash Balance combo plan arrangement, the business owners are each able to save upwards of $250,000 in tax deductible contributions per year. And the tax deductions on those contributions typically far exceed the annual plan administration costs plus the employer’s contribution expense for employees.

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Whether a traditional DB plan or a hybrid Cash Balance plan (with or without a 401(k) combo), these plans can yield significantly increased contributions for business owners and key executives. Net, net: you’re a hero by introducing a plan that allows dramatically higher contribution limits and tax deduction benefits, while simultaneously driving rapid AUM growth for your business.

To begin to take advantage of these plan types, we encourage you to visit the Defined Benefit and Cash Balance plans FAQ page on our website here.

When you’re ready to learn more about selling and servicing Defined Benefit and Cash Balance plans, please contact our Defined Benefit Department Manager, Kyle Brown at 615-515-4459 or email him. Kyle is located in Ashville, NC and will be more than happy to speak with you and your clients about whether a DB or Cash Balance plan might be a good fit. Kyle and his team will help you craft and present a proposal and will assist in helping you win the business.

Increased Contributions + Expert Help = AUM & Profitability Growth