A defined benefit plan expressed in account-balance terms — the employer guarantees the crediting rate, unlike a 401(k) where the employee bears investment risk.
How it works
The prior hypothetical balance grows by the plan’s guaranteed interest crediting rate, then this year’s pay credit is added — regardless of how the plan’s actual investments performed.
What this does not include
Pay credits in real cash balance plans typically scale up with age (allowing much larger contributions for older, highly-compensated owners) — this calculator takes a flat pay credit as input rather than an age-based schedule.
How to use this calculator
- Enter the prior balance, the guaranteed crediting rate, and this year’s pay credit.
Frequently asked questions
Why would a business use a cash balance plan instead of a 401(k)?
It allows much larger tax-deferred contributions for older, highly-compensated owners than a 401(k) alone permits — a common structure for professional practices and small businesses with older owner-employees.
Does the employee bear any investment risk?
No — the crediting rate is guaranteed by the plan regardless of actual investment performance, unlike a 401(k) where account value moves directly with the market.
Can a business have both a cash balance plan and a 401(k)?
Yes — many professional practices combine both to maximize total tax-deferred contribution room across the two plan types.
