Planning Your Financial Future
Things to Consider When Your Firm’s Cash Balance Plan Terminates

Law firms can terminate their cash balance plans for several reasons, and many of these can be positive for the law firm and the partners. As firms grow and assets within the cash balance plan grow, the financial liability a firm has to its partners and employees can be significant.

Not sure what a cash balance plan is? Click HERE to learn more about what it is, the benefits, and the opportunities.

When you receive a plan termination notice from your law firm, review your payment options, and make the decision that is best for you. That decision may be different than the partner in the next office or the 5th year associate on your floor. Don’t we swayed by other people’s choices.

Below is a list of typical distribution options, but keep in mind that each plan is different. Speak with your HR department with specific questions about your plan.

Annuity: The annuity payment is based on current annuity rates, the age of the participant, and whether it’s a single-life, joint-and-survivor, or period certain annuity. A joint-and-survivor annuity means the surviving spouse receives a benefit upon the death of the initial annuitant. In fact, the spouse will need to authorize (by notary) any distribution method that is not a joint-and-survivor annuity.

A lifetime annuity is great for people looking to lock-in their retirement income, are healthy with longevity in the family, and are concerned that they will outlive their money. Historically low interest rates have reduced lifetime payments, so this option is not as attractive as it was 10+ years ago.

Lump sum rollover to another qualified retirement plan: Rolling the lump sum payment to a 401(k) is a non-taxable event that accomplishes several things. The distribution puts all of the money in the control of the participant and that person makes investment decisions moving forward. Investment allocations can be rebalanced to an appropriate risk level based on the individual participant. The downside to this? The guaranteed return from the cash balance plan and lifetime income guarantee from an annuity are gone forever.

This option is ideal for participants looking to simplify their retirement savings and have all of their retirement dollars in one account.

Lump sum rollover to an IRA account: Moving the distribution to an outside IRA provides the greatest amount of flexibility for investments. Similar to the 401(k) rollover, this is not a taxable event and will allow the dollars to grow tax deferred until retirement or age 70 ½, when required minimum distributions begin.

Investing the dollars in an IRA opens up investment options such as individual stocks or bonds, mutual funds, or even illiquid investments like hedge funds or private equity. This can be a tremendous benefit to investors who qualify.

Using an IRA may be the proper option for participants looking to control their investment portfolio, and they are not happy with the investment options within their 401(k) platform. IRAs can be opened at many low-cost custodians such as Charles Schwab, Fidelity, and Vanguard among others.

The RIGHT move for you? All three of these common termination options can be the right fit for different clients. Consider what’s important to you and your family, your current financial situation, and how involved you intend to be with your investments.

STILL not sure? Feel free to give me a call for an objective discussion about what’s best for you.