cash balance plan

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Cash Balance Plan

A pension plan that combines features of a defined-benefit plan and a defined-contribution plan. Like a defined-benefit plan, a cash balance plan guarantees the pensioner a certain benefit upon retirement. That is, the amount one receives from a cash balance plan does not vary according to the performance of some portfolio. Like a defined-contribution plan, the employer agrees to place a certain percentage of one's salary into the plan each year, and accounts are created on an individual basis. A cash balance plan can be rolled over into another account if the employee changes jobs. As a result, it is relatively popular with younger workers.

cash balance plan

A qualified employer pension plan in which the employer guarantees a contribution level and minimum rate of return.

Cash balance plan.

A cash balance retirement plan is a defined benefit plan that has many of the characteristics of a defined contribution plan.

The benefit that you'll be entitled to builds up as credits to a hypothetical account. The hypothetical account is credited with hypothetical earnings, based on a percentage of your current pay.

These plans are portable, which means you can roll them over from one employer to another when you change jobs. That makes them popular with younger and mobile workers.

But they are often unpopular with older workers whose employers switch from a defined benefit to cash balance plan because their pensions may be less than with traditional defined benefit plans.

References in periodicals archive ?
Cash balance plans offer owner-employees in professional practices a vehicle to defer tax on income well in excess of the annual contribution limits of traditional Sec.
With an increasing number of attorneys bumping up against their maximum contributions for 401(k) and profit sharing plans, more law firms are turning to Cash Balance Plans to help shareholders/partners increase their pre-tax contributions," says Dan Kratvitz, President of Encino, California's Kravitz Inc.
An alternative to termination began in the mid 1980s with the introduction of cash balance plans by the Bank of America.
In "Somewhere in the Middle: Cash Balance Plans," Paul Zorn discusses one option--establishing a cash balance plan--and explains the implications of this choice.
The percentage of cash balance plans among both large and small employers is increasing, and this second edition reference supports the trend with updates on regulations and court rulings, treasury and IRS concerns, and details on risk mitigation and management strategies.
As defined benefit plans have become less prevalent, they have been replaced by defined contribution or cash balance plans.
IN THE PAST COUPLE DECADES, MANY companies have converted their traditional pension plans to cash balance plans in order to make benefits more predictable.
Cash balance plans look like DC plans to employees but operate like a DB pension for employers.
Retirement plans pose major risks for employers as companies join the trend of migrating from traditional company-paid pension plans, to 401(k) and cash balance plans.
Not created equal: Fully insured and cash balance plans
Despite this uncertainty, cash balance plans remain a small spring of vitality in the defined benefit plan world.
The arrangement also provides a minimum benefit for hybrid defined benefit plans, such as cash balance plans, which is a minimum percentage of contributions on a sliding scale that goes up by age.