Is Your Cash Balance Plan
Overfunded?
Strong market returns can push a plan past its funding target and close the room for deductible contributions. A rescue design may reopen that room, subject to the actuarial review.
A plan-design question our actuary reviews case by case.
What an Overfunded Plan Means
Strong market returns can push a cash balance plan past its funding target. When that happens, the room for further deductible contributions narrows or closes, and the profit that would have gone into the plan is taxed as income instead.
Contribution Room Narrows
Whether the plan is still open or has been frozen, once its assets exceed the funding target the deduction rules generally leave little or no room for further deductible contributions until the funding picture changes.
Excess Assets at Termination
If an overfunded plan is terminated, surplus assets that revert to the employer are generally taxed as income and subject to an additional excise tax. Termination, a qualified replacement plan and a rescue design are the routes compared, on the plan's facts, before anything changes; whether any of them fits depends on the actuarial review.
Illustrative Example
"In one illustrative case, a practice owner in their mid-fifties came to us with an overfunded plan. Reallocating part of the plan's assets into our strategy changed the funding picture enough for the actuary to revisit the annual contribution. Whether that applies depends on the plan's facts and the actuarial review."
Illustrative Case Study
Illustrative example
How a Rescue Design Works
Part of the plan's assets is reallocated into a whole life insurance policy the plan owns. Because that asset carries a lower expected yield, the actuary's funding calculation changes, and a funding shortfall may open that the sponsor can fill with new contributions, generally deductible within plan limits.
Reallocate Assets
A portion of the plan's market-based assets is reallocated into a whole life insurance policy owned by the plan, an asset whose values follow the carrier's illustration rather than the market, and an illustration is not a promise.
Recalculate the Funding
Because the insurance asset carries a lower expected yield than the plan's prior assumption, the actuary recalculates the plan's future growth, which can create a funding shortfall.
Fund the Shortfall
To close a funding shortfall the actuary certifies, the sponsor may make new contributions to the plan. Those contributions are generally deductible within plan limits, subject to annual testing.
Pension Rescue Analyzer
Use the tool below for an illustrative estimate of how much contribution room a reallocation might reopen. Actual results depend on your census, plan design and testing.
1. Your Baseline
Enter your profile to set the benchmark.
What you can deduct today — adjust to match your plan and every figure recalculates
Base Allowable Target
Est. Target Tax Effect
Illustrative estimate from your inputs. Actual results depend on your census, plan design and testing.
2. Strategy Controls
Shift allocations to see how the funding calculation changes.
The big picture
Illustrated baseline: the current contribution you entered, before any reallocation.
At 35% whole-life allocation — adjust the controls below.
Shift to a lower illustrated yield (3.0% assumed)
Years to fund the plan
Estimated Contribution Room
Estimated Deductible Amount
Not An Investment
Life insurance is used here for its lower assumed yield, which changes the actuary's funding calculation and may reopen deductible contribution room, within plan limits and testing.
Wealth Preservation Comparison
Total Capital — Without Rescue vs. With RescueAt 35% allocation over 5 years, the cumulative change in contributions is -$37,500 in this illustration.
* The projections generated by this calculator are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Please consult an independent tax or financial advisor before making any decisions based on this calculator.
3. Email My Results
Get this illustration as a PDF report, including the -$2,775 estimated annual tax effect from your inputs, sent to your inbox. Hypothetical, not a projection of your own result.
Ready for a
Plan Review?
The calculator above is an illustration; its third step emails it to you as a PDF report. A plan review is the next step: our actuary reads your plan's latest valuation and census and tells you what a rescue design would take. Actual figures depend on that review.
No obligation to implement. An illustration, not advice.
Technical Questions
Common questions from sponsors and their CPAs.
Tax Deductions & FAQ
Understand exactly how and where your pension contributions impact your tax returns — covering S-Corp, Sole Prop, Partnership, and W-2 earner filers.