Either Way, Your Cash Balance Plan Has a Design Problem!
Good News – Congress already addressed the flaw. Most plans just haven’t caught up!
If your cash balance plan is underfunded or overfunded, the instinct is to blame investment returns. That’s almost always the wrong diagnosis. What you’re seeing is not a market failure, it’s a plan design failure.
- The Core Issue: A Structural Mismatch
- Why This Became a National Problem
- Congress’s Response: SECURE Act 2.0
- Why Market Return Crediting (MRC) Fixes the Problem
- This Is Not a Marketing Gimmick
- A Simple Analogy
- The Real Takeaway
- The Opportunity Right Now
- Bottom Line
- Call to Action
The Core Issue: A Structural Mismatch
Traditional cash balance plans use Fixed Interest Crediting (FIC), typically 4%-5%.
That creates a rigid promise:
- The plan must credit participants a fixed return every year
- But plan assets are invested in market-based portfolios that fluctuate
That mismatch is the root problem.
What happens next:
- If investments underperform → underfunded plan → forced contributions
- If investments outperform → overfunded plan → trapped capital + lost deductions
Either way, the plan becomes inefficient.
That’s not bad luck. That’s bad engineering.
Why This Became a National Problem
This issue isn’t theoretical—it became widespread enough that Congress stepped in.
Under traditional FIC designs:
- Employers faced volatile required contributions
- Plans experienced funding whiplash
- Sponsors were penalized for both too little and too much success
The system was structurally flawed.
Congress’s Response: SECURE Act 2.0
With the passage of the SECURE Act 2.0, Congress reinforced a critical shift in how cash balance plans can be designed. While Market Return Crediting (MRC) was not newly created in the statute, its legal foundation comes from IRC §411(b)(5) and subsequent Treasury Regulations, which permit crediting rates tied to actual market performance within defined limits. SECURE 2.0 effectively validated and accelerated the adoption of these modern designs by removing practical barriers and signaling clear policy support for aligning plan liabilities with real-world investment outcomes turning what had been an underutilized option into a mainstream solution.
Why MRC Fixes the Problem
Under a properly designed MRC plan:
- When markets go down → liabilities adjust downward
- When markets go up → liabilities increase in step with assets
The result:
- Stabilized AFTAP
- Predictable contributions
- Reduced risk of excise taxes and “true-up” funding shocks
In short: The plan behaves the way it was always supposed to.
This Is Not a Marketing Gimmick
There’s a lot of noise in the marketplace right now.
Let’s be clear:
- MRC is not a product
- It is not proprietary
- It is not a sales pitch
It is a legislatively supported correction to a known structural flaw.
A Simple Analogy
Using a fixed interest crediting rate with market return investments is like prescribing a fixed dosage regardless of patient response.
Sometimes it works.
Sometimes it creates serious complications.
MRC is the equivalent of adjusting treatment based on real-time patient data.
It’s not more aggressive, it’s more accurate.
The Real Takeaway
If your plan is:
- Underfunded → it’s not because markets failed
- Overfunded → it’s not because markets succeeded too much
It’s because the design is disconnected from reality.
The Opportunity Right Now
Many plans are still operating with legacy FIC designs even after SECURE Act 2.0.
That creates a window:
- After AFTAP certification (March 31)
- Before participants complete 1000 hours of service (~June 30)
- Before Form 5500 filing deadline (July 31)
- Before year-end funding consequences are locked in
- Before another year of inefficiency compounds
Bottom Line
You don’t fix a structural problem with better returns:
- You fix it with better design
- Market Return Crediting is not a trend
- It’s the correction
Call to Action
If you’re a physician or practice owner with a cash balance plan, now is the time to evaluate:
- Current AFTAP status
- Funding volatility risk
- Structural inefficiencies in plan design
A Cash Balance Funding Risk Review can identify:
- Hidden overfunding or underfunding risks
- Opportunities to stabilize contributions
- Whether transitioning to MRC makes sense for your plan