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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 Monday, December 19, 2011 04:17 PM

 
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