Defined Benefit / Cash Balance Plans

The Defined Benefit/Cash Balance Plan is similar to a traditional pension but with a few elements that closely resemble a 401(k).  Participants do not invest any of their own money in the plan, nor do they have any responsibility for the investment choices.
Here's what's different:
Instead of the benefit of the retirement plan being based on a formula that takes into account how long the participant was employed and their average salary during their last few years of employment, the cash-balance plan credits the account with a set percentage of their salary each year, typically 5%, plus a set interest rate that is applied to the balance.
Each year, the participant received a statement that shows the hypothetical value of your account, as well as what sort of monthly income payout (or lump sum) that will generate when they retire at 65.
If the participant leaves the company before retirement age, they may take the contents of their cash-balance plan as a lump sum and roll it into an IRA. A traditional pension plan is not portable.

 



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