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Plan Insight

MAY 2010 Newsletter

Cash Balance Plans

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.

 

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

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