Technically, a cash balance plan is a defined benefit plan. However, since these plans also have some of the characteristics of a defined contribution plan, they are frequently called a "hybrid" plan.
Like a defined benefit plan:
- The benefits, rather than the contribution, are defined by the plan.
- The employer makes contributions to the plan based on the same kinds of actuarial assumptions.
- The employer is responsible for any shortfall between the value of the plan and its benefit commitments.
- The plans are covered by the Pension Benefit Guaranty Corporation (PBGC), and the employer must pay premiums.
Like a defined contribution plan:
- Individual accounts are established and maintained.
- Employees are generally given account statements showing them the value in their account on a regular basis.
A cash balance plan is unique:
- In establishing and crediting individual accounts with income based on a predetermined formula/rate, regardless of the actual investment return of the plan;
- Balances accumulate gradually over an employee's career.
Traditional defined benefit plans tend to use a final average pay formula, while cash balance plans tend to use a career average pay formula. Without corrective action, this can hurt the retirement income of older workers who are close to retirement when their company makes the switch.
April 19, 2013
Cash Balance Plans Could Overtake 401(k)s
Cash Balance Plans Could Overtake 401(k)s
April 19, 2013 (PLANSPONSOR.com) – Cash balance plans are growing in popularity and could overtake 401(k) retirement plans within the next few years, according to research from Sage Advisory Services.
Kevin McGuinness
editors@plansponsor.com
The Texa
April 09, 2013
Interest on Unpaid Pension Benefits Inadequate
Interest on Unpaid Pension Benefits Inadequate
April 9, 2013 (PLANSPONSOR.com) – An appeals court recently affirmed a previous award of unpaid pension benefits, but reversed the pre-judgment interest, claiming it is inadequate.
Kevin McGuinness
editors@plansponsor.com
In Schmacher v. AK Steel
April 04, 2013
Cash Balance Plan Growth Outpacing 401(k)s
Cash Balance Plan Growth Outpacing 401(k)s April 4, 2013 (PLANSPONSOR.com) – The rate of growth for cash balance plans is significantly higher than for 401(k) plans, according to Kravitz, Inc. Kevin McGuinness editors@plansponsor.com Highlights from Kravitz’s 2013 Cash Balance Research Rep
Feb 01, 2013
Hospitals Slower to Follow Retirement Plan Trends
Hospitals Slower to Follow Retirement Plan Trends
February 1, 2013 (PLANSPONSOR.com) – Research from Towers Watson indicates hospital organizations are not following retirement plan trends as quickly as other employers.
Rebecca Moore
editors@plansponsor.com
“Hospitals have been slow to embra