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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:
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.
Unfortunately, high-profile litigation several years ago surrounding some conversions from traditional to cash-balance plans limited their popular appeal.
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.
According to Ippolito and Thompson's (1999; Industrial Relations, 39: 228-245) excise tax avoidance hypothesis, a number of firms have switched to cash-balance plans because conversion allows the firm to avoid excise taxes on its excess pension assets.
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.
Cash-balance plans offer people a cash lump sum at retirement, which is usually based on their salary and how long they have been a member of a scheme, and they use this to buy an annuity to provide a retirement income.
9, the House approved an amendment to the department's fiscal 2004 appropriations bill that would prohibit Treasury from spending any funds on issuing regulations contrary to a federal district court ruling in late July finding International Business Machines had discriminated against older workers when it converted conventional pension plans to cash-balance plans in 1999.
Although cash-balance plans have been around since 1985, they went virtually unnoticed until IBM wanted to establish a cash-balance plan in 1999 and some employees sued.