The Two Numbers That Determine Your Retirement Health
A Cash Balance Plan Can Have a Heartbeat and Still Be Sick
As a physician, you understand that a patient’s health cannot be judged by a single number.
A patient may have a normal temperature and still suffer from high blood pressure, elevated cholesterol, or a hidden cardiovascular problem.
Your Cash Balance Plan works the same way.
Many physicians are told each year that their plan is “fine” because the actuarial valuation was completed and the required contribution was calculated. Unfortunately, that is the retirement planning equivalent of checking only your temperature during an annual physical.
The real health of your Cash Balance Plan is determined by two critical vital signs:
- FTAP – The Contribution Vital Sign
- AFTAP – The Distribution Vital Sign
Monitoring both measurements can be the difference between a retirement plan that delivers predictable tax deductions and retirement income versus one that creates funding surprises, lost deductions, or trapped assets.
1 . FTAP – Will Your Plan Continue Producing Valuable Tax Deductions?
The Funding Target Attainment Percentage (FTAP) compares your plan’s assets to the liabilities the plan has promised to participants using current funding assumptions.
In practical terms, FTAP answers this question:
“How healthy is my plan today, and how much money will I likely need to put into it tomorrow?”
FTAP is the primary measurement that influences future contribution flexibility.
FTAP Health Ranges
| FTAP Reading | Plan Diagnosis | Impact on Future Contributions |
| Below 80% | Critical underfunding | Significant contributions may be required to restore funding health. |
| 80% – 100% | Underfunded | Future contributions are likely to increase. |
| 100% – 120% | Healthy operating range | Contributions tend to be stable and predictable. |
| 120% – 140% | Elevated funding | Monitor carefully. Future deductible contributions may become reduced. |
| 140% – 160% | Significant overfunding | Contribution flexibility decreases and excess assets may begin accumulating. |
| Above 160% | Severe overfunding | The plan may lose much of its ability to accept meaningful future contributions. |
The Hidden Danger of a High FTAP
Many physicians assume that a high funding percentage is a sign of success.
In reality, a Cash Balance Plan with an FTAP of 150% may be showing symptoms of a different illness.
The physician may discover:
- Annual tax deductions have disappeared.
- The plan has accumulated more assets than needed to meet retirement goals.
- There is no efficient strategy to remove excess assets.
- A future plan termination could result in a taxable reversion, potentially subject to ordinary income tax plus a 50% excise tax.
The objective is not to have the highest FTAP possible. The objective is to maintain a funding level that supports consistent contributions and an efficient retirement exit strategy.
2. AFTAP – Will You Be Able to Take Your Money Out When You Need It?
The Adjusted Funding Target Attainment Percentage (AFTAP) is the legally certified funding ratio used under IRC §436 to determine whether participants can receive accelerated benefits.
In simple terms, AFTAP answers the question:
“When I retire, will my plan be healthy enough to distribute my benefits as intended?”
Unlike FTAP, AFTAP generally does not determine how much you put into the plan. It determines whether certain benefits can come out.
These include:
- Lump-sum distributions
- Accelerated payment forms
- Certain other restricted benefits
AFTAP Health Ranges
| AFTAP Reading | Plan Diagnosis | Impact on Taking Money Out |
| Below 60% | Critical condition | Lump-sum and other accelerated distributions are generally prohibited. |
| 60% – 79% | Serious underfunding | Accelerated benefits may be limited to the lesser of 50% of the benefit or the PBGC maximum guarantee amount. |
| 80% – 100% | Caution range | Full restrictions are removed, but funding should continue to be monitored carefully. |
| 100% – 120% | Healthy operating range | Participants generally have full distribution flexibility. |
| 120% – 140% | Strong funding | Comfortable margin above restriction thresholds. |
| Above 140% | Potential overfunding | Distribution restrictions do not apply, but excess assets may create future termination challenges. |
The Best Cash Balance Plans Stay in the “Healthy Zone”
A healthy physician Cash Balance Plan does not maximize FTAP or AFTAP.
Instead, it operates within a controlled funding corridor.
Ideal Vital Signs
| Measurement | Target Range | Why It Matters |
| FTAP | Approximately 100%–120% | Maintains predictable annual contributions and ongoing tax deductions. |
| AFTAP | Approximately 100%–120% | Maintains distribution flexibility and a comfortable funding cushion. |
| FTAP vs. AFTAP Gap | Less than approximately 10 percentage points | Indicates the plan is operating in line with expectations. |
The Most Dangerous Cash Balance Plans Are Often the Ones That Appear Healthy
In our experience reviewing small physician Cash Balance Plans, the biggest problems are rarely sudden failures.
They are slow drifts.
A plan may become 150% funded after several years of strong investment performance. Another may fall to 90% because the investment strategy is not aligned with the liabilities.
Neither problem occurs overnight.
Without regular monitoring, physicians can lose future tax deductions, face unexpected contribution requirements, or encounter difficulty exiting the plan efficiently.
Give Your Cash Balance Plan an Annual Physical
You would never tell a patient, “Your temperature is normal, so you must be healthy.”
Your retirement plan deserves the same standard of care.
Every year, your Cash Balance Plan should undergo a complete funding health review that examines:
✓ FTAP and future contribution flexibility
✓ AFTAP and retirement distribution flexibility
✓ Funding trends over time
✓ Overfunding and underfunding risks
✓ Asset and liability alignment
✓ Progress toward your retirement objectives
The healthiest Cash Balance Plans are not the ones with the highest balances.
They are the ones that maintain stable contributions, maximize tax efficiency, and allow physicians to exit the plan on their own terms.
Complimentary Cash Balance Plan Funding Health Review
At Physicians Pension Fiduciary, we help independent physicians evaluate whether their Cash Balance Plan is healthy or showing early signs of trouble.
Our Funding Health Review examines your plan’s vital signs and identifies opportunities to improve contribution stability, funding efficiency, and retirement outcomes.