cash balance plan

(redirected from Cash-Balance Pension Plan)

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.
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cash balance plan

A qualified employer pension plan in which the employer guarantees a contribution level and minimum rate of return.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
A cash-balance pension plan can represent an opportunity for those who had previously over- looked one.
For business owners and professional groups, cash-balance pension plans might present an opportunity to maximize or catch up on their retirement-planning strategies, reduce taxable income, and take advantage of asset and creditor protection.
Considered to be hybrids, cash-balance pension plans are a type of retirement plan that offers the unique characteristics of traditional defined-benefit plans, with annual contributions and promised retirement benefits, and the individual account features and portability of defined-contribution plans.
The Times also reported that "the cash to finance the buyouts will come from the over-funded portion of Tribune employees' cash-balance pension plan. Hiller said that Tribune officials have determined that the defined-benefit plan has about $300 million more than it needs to meet future obligations to retirees.
The history of the development of the cash-balance pension plan is an indication of the advantages it brings to companies that adopt it.
Many features of the cash-balance pension plan resonate with today's changing workplace.
In the past, plan sponsors might have been hesitant to convert an existing traditional defined benefit plan into a cash-balance plan because many courts had ruled that these plans were discriminatory on the basis of age; however, PPA provides legal certainty for employers and plan sponsors that establish a cash-balance pension plan by clarifying that they do not violate discrimination laws if certain conditions are met.
The Pension Protection Act of 2006 (PPA) made permanent the pension provisions of the Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA), including higher dollar limits, an increase in the combined deduction limits brought about by eliminating Internal Revenue Code (IRC) section 404(a)(7), and new rules for cash-balance pension plans.
15 to reconsider a lower court's decision finding Xerox had paid out too little to former employees under its cash-balance pension plan.
Despite the growing importance of cash-balance pension plans in the private retirement system in the United States, we have little evidence on the characteristics of firms that are using these hybrid plans.
The Treasury Department has decided to delay issuing contentious regulations on cash-balance pension plans until Congress passes legislation on them.
Controversial bills have been introduced in congress that would limit corporate use of cash-balance pension plans, which many large companies have gone to, especially in the high-technology industry.