Setting up a cash balance plan
isn't the right strategy for every business.
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.
Our final observation is that even though the Treasury market is liquid only out to 30 years, the cash balance plan
has short interest rate sensitivity to Treasury bond yields beyond that time frame, due to the forward-looking nature of interest-crediting rates.
Although the owner-employees of professional practices could obtain significant tax savings by using a cash balance plan
, they should undertake a comprehensive retirement planning and business analysis to determine whether it is appropriate for them.
If the firm and employees value the implicit contract, the firm is less likely to break the implicit contract outright (terminate the defined benefit plan) and more likely to convert to a cash balance plan
(modify the contract) and the estimated coefficient for PWT should be negative.
Second, public employers could shift to DC or cash balance plans
, both of which generate benefits based upon lifetime earnings and contributions.
One factor fueling the rise of cash balance plans
, the report adds, is the 2006 Pension Protection Act.
It also included details about the choice that retirees would have between the cash balance plan
and the minimum benefit.
Finally, transition costs from a defined benefit pension to a cash balance plan
would quickly drain public coffers.
Among the changes being considered is a provision that would allow employees to convert accrued benefits into a cash balance plan
A unique retirement plan variation can grease the skids of an exit strategy and leave all parties in a win-win situation: the creative use of a special retirement hybrid known as a cash balance plan
. In the context of a partnership buy-out, you can incorporate a cash balance plan
as an overlay to an existing 401 (k) plan and create the opportunity for massive retirement plan contributions for older people in their 60s.
A cash balance plan
is a defined benefit plan that calculates benefits in a manner similar to defined contribution plans.