Why July 31 Is Not the Finish Line, It’s the Starting Point
For most physician-owned Cash Balance Plans, July 31 marks the filing of Form 5500 and the official close of the prior plan year.
Unfortunately, many physicians and advisors treat this date as the end of the planning process. They put the plan back on the shelf and do not revisit it until the next tax season.
That is often a costly mistake.
The period immediately after the Form 5500 filing is one of the most valuable planning windows of the entire year. The prior year’s financial data is now complete, funding levels are known, and there are several months remaining to make strategic changes before year-end.
The physicians who achieve the best retirement outcomes are those who use August through December as their Cash Balance Plan optimization period.
Action #1: Perform a Cash Balance Plan “Annual Physical”
Just as physicians evaluate a patient’s vital signs, a Cash Balance Plan should undergo an annual health examination.
The key measurements include:
Funding Status
- Review the plan’s Funding Target Attainment Percentage (FTAP) to determine whether the plan is underfunded, properly funded, or overfunded.
- Review the Adjusted Funding Target Attainment Percentage (AFTAP) to understand whether benefit restrictions may apply.
- Identify whether the difference between FTAP and AFTAP is widening, which may indicate contribution timing problems, investment mismatch, or actuarial assumptions that need review.
A healthy plan generally operates within a funding corridor that provides flexibility while avoiding unnecessary contribution volatility.
Action #2: Determine Whether Your Crediting Rate Design Still Makes Sense
Many older Cash Balance Plans still use a fixed interest crediting rate, often around 4% or 5%.
This creates a fundamental challenge:
- If investments outperform the crediting rate, the plan can become significantly overfunded.
- If investments underperform the crediting rate, the sponsor may face unexpected required contributions.
Under SECURE 2.0, many plans can now use a Market Return Crediting (MRC) approach that aligns participant liabilities with actual investment performance.
Potential benefits include:
- Better alignment between assets and liabilities
- More predictable funding levels
- Lower risk of significant overfunding or underfunding
- Improved contribution efficiency over the life of the plan
August through December is an excellent time to evaluate whether a transition to MRC should be considered for the upcoming plan year.
Action #3: Project Next Year’s Contribution Before Tax Season
Many physicians make the mistake of discovering their contribution requirement after the tax year has ended.
Instead, use the second half of the year to answer:
- What contribution will likely be required next year?
- Is the practice cash flow sufficient?
- Is the current plan design still aligned with retirement objectives?
- Are there opportunities to increase or decrease future accruals?
A proactive contribution forecast allows the physician to manage both taxes and cash flow rather than reacting under pressure.
Action #4: Review Your Long-Term Exit Strategy
A Cash Balance Plan should be coordinated with the physician’s broader retirement and business plan.
Important questions include:
- Do you expect to sell your practice or join a larger medical organization?
- Are you within five to ten years of retirement?
- Is your plan trending toward a surplus or deficit?
- Is your investment strategy consistent with your expected retirement timeline?
The biggest Cash Balance Plan failures often occur during practice transitions because the plan was not monitored years before the exit event.
Action #5: Build Your Advisory Team Before Problems Develop
A successful Cash Balance Plan requires coordination between multiple professionals:
- The physician practice owner
- The CPA
- The actuary
- The investment fiduciary
When each advisor works independently, important risks can be overlooked.
The most successful plans have a coordinated retirement protocol where each professional understands the physician’s long-term objectives and monitors the plan throughout the year not just during tax season.
The August Advantage
The period after Form 5500 is filed is the ideal time to take control of your retirement plan.
By August, you have:
✓ Actual prior-year funding data
✓ Current FTAP and AFTAP information
✓ A clear picture of investment performance
✓ Time to evaluate design changes
✓ Several months to prepare for the next contribution cycle
Waiting until March or April often means your options are limited and your decisions become reactive.
The PPF Cash Balance Plan Health Check
At Physicians Pension Fiduciary, we believe every physician Cash Balance Plan should receive an annual health examination after the Form 5500 filing.
Our review evaluates:
- FTAP and AFTAP funding health
- Funding volatility and contribution trends
- Fixed Interest Crediting versus Market Return Crediting opportunities
- Investment alignment
- Long-term retirement and practice exit planning
The best time to fix a Cash Balance Plan problem is before it becomes one
August through December may be the most important six months in your retirement optimization protocol. Give us a call.