More small firms are adding cash-balance pensions as the economy has improved, with a two-fold purpose that benefits employees: rebuilding their battered nest eggs and avoiding higher taxes, The Wall Street Journal reported.

It is the prospect of higher taxes that has doctors, lawyers, plumbers and other small business operators favoring these hybrid plans, which enable them to set aside significantly more pretax dollars than they could in a 401(k) or profit-sharing plan.

"A lot of people are feeling more positive about business and want to make investments," says Dan Kravitz, president of Kravitz, which designs and administers retirement plans.

Cash balance plans are a type of defined-benefit program governed by the Employee Retirement Income Security Act, with contributions made by the company, not by the employee. They can be effective for high earners, particularly professionals, because they allow much larger amounts of compensation to be deferred from income than a 401(k) and profit-sharing plan, which have relatively low limits.

The amount varies with a person's age, but pretax contributions can exceed $100,000 a year for someone in their early 50s.

The Pension Protection Act of 2006 provided legal clarity for the plans, which are significantly increasing in number, according to Kravitz. A report it released earlier this year found that 80% of the plans are at firms with less than 100 employees and 79% are combined with a profit sharing plan or a 401(k).

Linden Thomas & Co. in Charlotte, N.C., is typical of a lot of the companies adding the plans. The 20-employee company already offered a 401(k) and profit sharing plan when it recently added a cash balance plan.