An Overview of Federal and State Overtime Exemption Laws

On Sept. 24, 2019, the U.S. Department of Labor issued a final rule increasing the salary threshold for executive, administrative and professional employees from $455 per week to $684 per week. These “white-collar” employees are exempt from the Fair Labor Standards Act’s overtime pay provisions. The final rule took effect Jan. 1, 2020. What the … Read more

Are Your Employees Cross-Trained?

When employees quit or miss work for some reason, when layoffs become necessary, or even when it’s just a matter of busy season, cross-trained employees can step in to minimize disruption. Simply put, cross-training is about showing employees how to do each other’s jobs. Cross-Training Has No Industry Limits Even if you have only a … Read more

What Are Predictive Scheduling Laws?

At times, you may want to suddenly change an hourly employee’s work schedule to better suit your business needs. However, several jurisdictions have enacted predictive scheduling laws to prevent certain employers from changing hourly employees’ schedules without giving advance notice. On Nov. 25, 2014, San Francisco passed the first predictive scheduling law, called ‘The Formula … Read more

Employee Retention Tax Credit Gets a Boost

The second relief bill, passed at the end of 2020, contains updates to the employee retention credit, a refundable payroll tax credit. Each option has its own rules and regulations for first- and second-round funding. The act changes some requirements for the ERC — retroactively and prospectively — giving businesses more options to claim it. … Read more

IRS Updates Form 941 To Reflect COVID-19 Tax Credits

The IRS has revised Form 941, Employer’s Quarterly Federal Tax Return, to accommodate COVID-19-related employment tax credits granted under the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. If you’re eligible for the credits, you can claim them on the updated Form 941. What tax credits are allowed under … Read more

What the Taxpayer First Act Means for Employers

According to the IRS’ website, the Taxpayer First Act of 2019 “aims to broadly redesign” the IRS by expanding and strengthening taxpayer rights and making the agency more taxpayer friendly. The legislation focuses on improving IRS information technology and making it easier for taxpayers to interact with the agency. Moreover, the act has three changes … Read more

Cash Balance Plans: Defined-Benefit with a Twist

Both individuals and the companies they work for continue to explore new ways to address the finances of retirement. One option is the cash balance plan. It works like a pension plan in that workers can get a lifetime annuity. However, unlike a pension plan, a cash balance plan creates an individual account for each covered employee, complete with a specified lump sum. And it offers potential savings for employers.

The cash balance plan assumes a combination of employer contributions and compound interest over time. When employees retire, they can either take the lump sum or commit to an annuity that pays a portion of the sum in regular checks. Employer contributions are often between 5% and 8%, compared with the 3% employers typically contribute to 401(k) plans. Participants also receive an annual interest credit, which may be set at a fixed or variable rate, based on the 30-year Treasury rate.

With a cash balance plan, the amount of money an employee can expect in retirement is defined. The employer, not the employee, bears the risk of market fluctuations — unlike a 401(k) in which the employee bears the risk of a market downturn that can wipe out savings.

However, cash balance plans are insured and must offer the option of a lifetime annuity. Owners can change or freeze a pension plan, but they can’t renege on benefits employees already have earned. Most of the funds in defined benefit plans are federally insured through the Pension Benefit Guaranty Corporation, a government agency.

If an employee decides to take benefits from a cash balance plan as a lump sum, it can be rolled over into an IRA or a new employer’s plan. 

Business owners who establish a cash balance plan for themselves and their employees will find much higher contribution limits than they’d get with a 401(k). This can be a real lifesaver for those who need to make sizable catch-up contributions to prepare for retirement. Contribution limits for cash balance plans are based on age. These are pretax contributions and compare favorably with a 401(k), in which total employer and employee contributions have much lower limits.

Having a cash balance plan in addition to a 401(k) can help retirement savers lower their tax bills and increase their retirement funds. Cash balance plan participants get regular statements explaining the hypothetical value of the retirement account as well as the money they can expect to have in retirement. If workers choose an annuity, they have less control but enjoy the peace of mind that comes from knowing they can’t overspend and leave themselves with nothing in old age.

Of course, employees may face reduced benefits if the company runs into difficulties later. That’s why some employees choose to take their benefits as a lump sum and roll it over into an IRA while they can, taking long-term responsibility for their retirement. If you choose a rollover, you’re taking the responsibility to make your benefits last for the rest of your life.

Whether you’re an employee or a business owner, call us to find out more about cash balance plans and how they can help you.

If you have any questions about this information please contact BlueStone by clicking here.

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