Working professionals who own a portion of their firm are uniquely positioned to derive value from a cash balance plan
because their salary generally is relatively high.
The Solution : You may be the perfect candidate for a Cash Balance Plan
Under a cash balance plan
, the benefit is determined by the amount contributed and a stated rate of return.
She explains that the conversion to a cash balance plan
is an attempt "to maintain much of the value of the pensions for employees while at the same time man-aging the liabilities that the employer is going to have to bear.
We estimate, for instance, that the chance of worsening teacher effectiveness is about 60 percent with a cash balance plan
and 70 percent with a DC plan under optimistic assumptions that favor alternative benefit designs based on the existing long-standing literature on pensions and turnover and the much smaller literature on initial compensation and teacher effectiveness.
The beauty of incorporating a cash balance plan
is that the contributions are a tax-deductible expense for the firm and its remaining younger business owners.
When the participant in a cash balance plan
leaves employment with
A cash balance plan
is a defined benefit plan that specifies the amount of contribution to be credited to each participant.
Thus, if you converted a traditional defined benefit plan to a cash balance plan
prior to this date, the PPA provides you no assurance that the conversion did not result in age discrimination.
Birgit Anne Waidmann, manager, PricewaterhouseCoopers Human Resource Services practice, says that often, in converting a traditional DB plan to a cash balance plan
, an age-weighted formula is used for the annual credits under the cash balance plan
, in order to mimic the traditional plan's backloaded design.
In 2003, 87 percent of cash balance plan
participants received a percentage of employer contributions based on one or a combination of factors, with age (62 percent) and service (58 percent) being the most common.
The group said it held discussions with staff before setting up the new cash balance plan
, and the company was also paying for its workers to take financial advice on which scheme they should be in.