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 ?
The idea for the cash balance plan came from some Houston business leaders worried that Turner's plan would not adequately shore up the shortfalls and would lead to cuts in city services or employee layoffs.
However, the downside is that once a sponsor has a cash balance plan in place, because it is a defined benefit plan, they need to fund it every year.
These non-traditional sensitivities indicate that if a substantial flattening of the yield curve occurs--with long-dated yields either falling by more than short-dated yields, or rising by less than short-dated yields--then the value of liabilities in the cash balance plan will fall.
However, cash balance plan assets are maintained by the practice in one pooled account, unlike Sec.
The above simple logit model (Equation (1)) assumes converting to a cash balance plan and terminating the plan and replacing it with a DC plan are essentially the same decision, and factors affecting that decision are the same.
El Paso converted its traditional pension plan to a cash balance plan in 1997.
Teacher turnover can be expected to increase with alternative benefits because employees will understand that their economic security is less well protected with a DC or cash balance plan than with a DB pension.
In this small-company environment, the cash balance plan offers a tremendous advantage for older business owners and professionals.
In response to this concern, the Pension Protection Act of 2006 required that future conversions of defined benefit plans to cash balance plans preclude the possibility of "wear-away" (i.
A cash balance plan provides a hypothetical individual account for each participant.
A cash balance plan contribution, however, can be as much as $200,000 per year, depending on the participant's age.