cash balance plan

(redirected from Cash-Balance Plans)

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 ?
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.
Cash-balance plans 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.
"Cash-balance plans," 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.