Cash Balance Plans
A cash balance plan is a type of defined benefit plan that offers the underlying features of a traditional pension, but with easier-to-understand benefits that more closely resemble a profit-sharing plan. Like a traditional pension plan, employees do not invest any of their own money in the plan, nor do they have any responsibility for the investment choices. The cash balance plan credits each participant’s account with a set percentage of salary each year, plus an interest rate that is applied to the balance. At retirement, these benefits may be paid as a lump sum or an annuity like a traditional pension plan. Additionally, a cash balance plan allows employers to deliver differing levels of benefits to various business classifications within a company.