Supplemental cash balance plans. (Q&A).(part one of a two-part series)(Brief Article)

From an interview with Hubert V. Forcier, Esq.

Part I of a Two-Part Series

As baby boomer professionals and owners of small businesses near their anticipated retirement age, many are finding that they have insufficiently funded their retirement. This year many will be increasing their pretax contributions that they will make to their 401(k)/profit sharing plan to $40,000. (That is the new annual limit for profit-sharing plans in 2002.) But many of these individuals are concluding that merely increasing their profit sharing contributions to $40,000 won't fully solve their problem. Therefore, they are looking to add a supplemental defined benefit pension plan--specifically a cash balance plan. This month we are speaking to Hugh Forcier, an attorney with extensive experience with supplemental defined benefit pension plans. His new book, The Guide to Cash Balance Plans, is being released by Aspen Law and Business this summer. Hugh is a partner in the Minneapolis office of Faegre & Benson LLP.He can be reached at 800-328-4393 or at hforcier@faegre.com.

Q What is a supplemental cash balance pension plan?

A It is a tax-qualified defined benefit plan that can be used by professionals and small business owners to increase their total pretax contributions to levels substantially above $40,000. All other things being equal, these plans would be structured so that the first $40,000 of the pretax contribution is made to the firm's profit sharing plan (including an $11,000 401(k) elective deferral contribution)--with the balance of the total pre-tax contribution over $40,000 being made to the supplemental cash balance plan. But all other things are not always equal. Sometimes only a 401(k) elective deferral contribution is made to the profit-sharing …