Qualified plans will include 401Ks, 403Bs, simple IRAs, profit-sharing plans, defined-benefit plans and cash-balance plans
Hoping to trim pension obligations, many firms discontinued traditional defined benefit pension plans, in which firms promise a specific monthly benefit, or converted them to cash-balance plans
, in which the firm contributes a defined percentage of the participant's compensation each year.
can help highly compensated employees considerably.
Companies Best Suited for Cash-Balance Plans
The following companies are best suited for this type of retirement plan:
Although pensions are generally available at fewer and fewer large companies (though the growth in micro and small cash-balance plans
lately has been amazing), these plans have influenced-and likely will forever-defined contribution plans as far as plan design and investment vehicles.
Some observers have argued that states should take the crisis as a chance to switch retirement benefits from defined-benefit pensions to either defined-contribution or cash-balance plans
. Whether average teacher effectiveness will fall or rise after switching public employees from deferred compensation under defined-benefit pensions to immediate compensation under defined-contribution or cash-balance plans
will depend on the size of each of the following effects: (1) The amount of turnover; (2) The extent of the learning curve; and (3) The reaction to initial compensation changes.
," in which participant account balances are credited with a fixed rate of return and converted into a monthly benefit at retirement, have been the most prominent of these "hybrid" plans.
The company has added plan-design options, including cash-balance plans
and how they can complement 401(k) plans, said Gradeless.
For "hybrid" or cash-balance plans
, which combine features of DB and DC plans, the PPA has been a blessing: it specifically affirms their status, defines them and concludes that they are not age-discriminatory, which had been a common complaint, Glickstein notes.
The technology giant's move is the latest in a growing trend among large employers--once the bastion of defined benefits in the private sector--to freeze defined-benefit and cash-balance plans
An interesting aspect of this transition is the large number of sponsors that converted traditional defined-benefit plans into cash-balance plans
during the latter part of the 1990s.
If it does survive, it could have an adverse effect on all cash-balance plans
, by requiring employers to provide significantly more generous interest credits for older workers than for younger ones.