How Financial Advisors and CPAs Can Help Clients With Defined Benefit Plans & Cash Balance Plans

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Setting up a defined benefit (DB) plan involves collaboration between financial advisors, CPAs, and clients to ensure that the plan meets the client's financial goals, tax planning needs, and compliance requirements. Here's how financial advisors and CPAs can work together to help clients set up and manage defined benefit plans:
1. Assess Client Suitability
CPA Role: Evaluate the client’s financial situation, including income, profitability, and tax liability.
Identify the potential tax benefits of a DB plan for high-income clients or small business owners.
Confirm the client’s ability to fund the required contributions consistently.
Financial Advisor Role: Discuss the client’s retirement goals, investment risk tolerance, and future income needs. Evaluate whether a DB plan aligns with the client’s retirement and wealth management strategy.
2. Plan Design
CPA Role: Collaborate with actuaries to determine the optimal contribution levels for tax planning.
Ensure the plan design aligns with the client’s current and projected income.
Financial Advisor Role: Work with the plan provider or actuary to tailor the investment strategy based on the client’s retirement goals. Design an investment portfolio that meets the funding requirements while balancing risk and return.
3. Coordination with Actuaries
CPA Role: Facilitate communication with the actuary to understand funding requirements and compliance thresholds. Ensure the client’s financial records and reports are accurate to support actuarial calculations.
Financial Advisor Role: Review actuarial reports with the client to explain funding requirements and any potential adjustments to the plan.
4. Tax Strategy
CPA Role: Incorporate the DB plan into the client’s overall tax strategy.
Highlight the potential to reduce taxable income through contributions while ensuring compliance with IRS regulations.
Financial Advisor Role: Complement the tax strategy by focusing on maximizing the long-term growth of the plan assets. Suggest additional tax-advantaged retirement planning options if the DB plan doesn't fully meet the client’s needs.
5. Plan Implementation
CPA Role: Verify that plan documentation meets IRS and Department of Labor requirements.
Assist the client in establishing a trust for the DB plan assets.
Financial Advisor Role: Oversee the setup of the investment account for the plan.
Implement the investment strategy based on actuarial recommendations and client goals.
6. Ongoing Management
CPA Role: Monitor the plan’s funding levels annually to ensure compliance with IRS guidelines.
Advise the client on adjusting contributions based on cash flow, profits, or tax planning opportunities.
Financial Advisor Role: Regularly review the performance of the plan’s investments.
Adjust the portfolio to align with the client’s retirement timeline and funding needs.
7. Communication with the Client
CPA Role: Provide annual reports summarizing the tax impact and funding requirements of the DB plan. Explain changes in tax laws or regulations that might affect the plan.
Financial Advisor Role: Update the client on the performance of the plan’s investments and any recommended changes. Reassess the client’s retirement goals periodically to ensure the plan remains appropriate.
By working together, CPAs and financial advisors can provide a comprehensive approach to DB plans, ensuring they are set up and managed effectively to meet client goals.