Freezing Pension (Cash Balance) Accruals to Enhance Financial Flexibility
As the COVID-19 pandemic continues to create economic turmoil across all industries, it’s important for struggling businesses to seek effective solutions to free up available funds. For larger medical practices who sponsor cash balance plans, freezing plans could be an effective solution to free up a significant amount of capital during the COVID-19 crisis.
Most cash balance pension plans provide that benefits are “earned” once employees complete 1,000 hours during the year. For full-time employees, 1,000 hours is usually reached in June. At least 15 days prior to this date, the plan may be “frozen” by providing a notice to plan participants and amending the plan to curtail benefits. Once amended, this will stop plan benefits from increasing, thereby eliminating the “normal cost,” which is typically the largest component of a plan’s required contribution.