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The Truth About Cash Balance Plans and Non-Qualified Retirement Plans

Cash Balance Plans vs. Non-Qualified Plans

A Cash Balance Plan is a type of qualified retirement plan that operates under ERISA guidelines.  It typically allows for higher deductible contributions than what is found in a 401(k) plan but is also subject to required contributions and nondiscrimination testing. 

A Non-Qualified Retirement Plan does not operate under ERISA guidelines.  It typically allows for higher contributions to highly compensated employees without required contributions or nondiscrimination testing but does not provide the tax benefits found in a qualified plan.

While both Cash Balance and Non-Qualified plans are great tools for maximizing benefits to owners and key employees, there are significant differences between the two.

Below is a break down of the key differences between a Cash Balance Plan and a Non-Qualified Plan:

  Cash Balance Plan Non-Qualified Plan

Employer Taxation

Immediate tax deduction

Tax deduction at the time of distribution

Employee Taxation

Benefits are taxed upon cash distribution

Benefits are taxed upon cash distribution


Rollover plan assets without paying taxes

Taxed payouts based on the plan’s terms


Creditor protected

Not protected by creditors

Benefit Limits

Subject to ERISA


Compliance Testing


Not required


Required annual contributions

Contributions not required


Benefits are guaranteed

Benefits are not guaranteed

While a Non-Qualified retirement plan seems appealing because of no contribution limits or compliance testing, it lacks the immediate tax benefits to the employer, a guaranteed benefit, and creditor protection to the employee found in a Cash Balance Plan.

At Trinity Pension Consultants, we offer an Ideal Cash Balance Plan that produces predictable, sustainable, and flexible results that cannot be achieved with a Non-Qualified Retirement Plan.

Contact your Regional Vice President/Retirement Sales to learn more about our Ideal Cash Balance Plan

About the author

Heather Craigg