CASE STUDY: New Cash Balance Plan (Owner + Staff Impact)

First-Year Implementation — No Prior Year Plan

Practice Profile

• Owner: Age 52 physician
• Income (W-2 / K-1 combined): $1,000,000
• Employees: 8 total
  • Avg age: 38
  • Avg comp: $80,000
• Existing Plan: 401(k) + Profit Sharing

 

Baseline (Owner Only – No Existing Cash Balance Plan)

Component	Contribution
401(k) + Profit Sharing	~$76,500
Total Deduction	$76,500

 

Efficient for staff… but severely capped for owner

 

With Cash Balance Plan Added (Adopted Before 12/31)

 

Owner Contribution

Component	Contribution
401(k) + Profit Sharing	$76,500
Cash Balance Plan	$300,000
Total Owner	$376,500

 

Staff Cost Impact

1) 401(k) + Profit Sharing (Required)

Category	Amount
Staff PS contribution	~$120,000

 

2) Cash Balance Plan (Required Minimums)

Category	Amount
CB credits to staff	~$80,000

 

Total Employer Cost

Category	Amount
Owner total	$376,500
Staff total	$200,000
Total Contribution	$576,500

 

Efficiency Ratio (What Actually Matters)

• Owner benefit: $376,500
• Staff cost: $200,000
• Efficiency Ratio ≈ 1.9 : 1

For every $1 to staff → ~$1.90 to owner

 

Tax Impact

• Total deductible contribution: $576,500
• Incremental vs. no CB: ~$500,000

At ~40% combined tax rate:  Tax savings ≈ $200,000

 

Timing Advantage

Under Internal Revenue Code Section 412 & 430 framework:

• Plan adopted: Late in current year (e.g., October–December)
• Contribution funded: By September 15 next year
• Finalize contribution amounts after 2026 income is known
• Coordinate with CPA for maximum deductible contribution
• Layer in design changes before AFTAP certification (March 31, 2027)

Large deduction now, cash funded later

 

Design Levers (Why This Works)

Because there is no prior CB plan, we can optimize from scratch:

Key Design Choices

• Age-weighted allocations (favor older owner vs younger staff)
• Compensation caps and integration
• Cross-tested profit sharing to minimize staff load
• Cash balance formula calibrated to maximize owner accrual

 

What Happens If Designed Poorly (Typical Market Outcome)

Design Type	Staff Cost	Owner Benefit	Ratio
Generic FIC design	$250K+	$300K	~1.2 : 1
Optimized design (above)	$200K	$376K	1.9 : 1

 

The difference is pure design not investment return

 

Key Insight

Starting fresh (no prior Cash Balance plan) is the highest-leverage entry point:

• No legacy funding issues
• No AFTAP constraints under Internal Revenue Code Section 436
• Maximum flexibility to skew benefits toward the owner

 

Decision Framing (What the Physician Actually Decides)

You’re not deciding:

“Do I want a CB plan?”

You’re deciding:

“Am I willing to spend ~$200K on staff to unlock ~$300K+ for myself and save ~$200K in taxes?”

 

Call to Action

Cash Balance Cost vs. Benefit Analysis (Custom to Your Practice)

We’ll model:

• Exact staff cost (by census)
• Maximum owner contribution range
• Efficiency ratio
• Tax savings
• 3–5 year funding stability (MRC vs FIC)