The cash balance plan is the most common modern host for a §401(h) sub-account. The combination is so common that most cash balance providers will quote a 'cash balance + 401(h)' design as a single integrated structure.
Why the pairing works
Cash balance plans produce predictable, high contributions that are well-suited to the 25% subordination test. Because the contribution is funded at the entity level and the §401(h) sub-account is a sleeve of the same trust, there is no separate funding mechanism to administer.
Typical sizing
Most practical designs target a §401(h) contribution equal to 18–22% of the combined contribution to preserve subordination headroom. For a $300,000 cash balance contribution, that translates to roughly $54,000–$66,000 of §401(h) capacity.
Investment policy
§401(h) assets are typically invested alongside the cash balance assets under the same investment policy statement, since both have similar duration profiles and conservative return targets.
Implementation steps
The implementation sequence is straightforward:
- Amend the cash balance plan document to add a §401(h) provision.
- Establish separate accounting within the trust.
- Update the actuarial valuation to include §401(h) contribution sizing.
- Coordinate Form 5500 reporting (the §401(h) is reported as a sub-account of the DB plan).