Cash Balance Plan – What is it?
The purpose of this article is to answer the following questions in a simple-to-understand manner: • What is a cash balance plan? • Why is it becoming popular? • What does a plan participant need to know? What is a cash balance plan? Most retirement plans belong to one of two types: defined benefit (DB) and defined contribution (DC). The main characteristics of a DB plan are: • the benefit for a participant is defined by a benefit formula that depends on factors such as salary and years of service • the contributions required to fund the plan benefits are not defined, but are calculated by an enrolled actuary based on actuarial liability, plan assets, and funding method adopted by the plan sponsor • sponsor (typically your employer) of the plan is responsible for the investment of the plan assets – higher returns will reduce future employer contributions, lower returns will increase future contributions • the plan assets are not separated for individual participants • the Pension Benef
