Cash Balance Plans
To learn more, view the podcast below with our Actuary, Dave Yackel, “Using a Cash Balance Plan to Save Large Pre-Tax Dollars”:
What is a Cash Balance Plan (Hybrid Plan)?
A Cash Balance Plan is a type of Defined Benefit Plan. Many people are familiar with the mechanics of determining a participant’s benefit and contributions under a Defined Contribution Plan, such as a 401(k) or Profit Sharing Plan. However, determining benefits and contributions for a Defined Benefit Pension Plan is generally more complex and less intuitive. A Cash Balance Plan, however, defines the retirement benefit in terms of a hypothetical account balance or a single sum amount, resembling the type of benefit offered by a defined contribution plan. Contributions and interest at a pre-determined rate (stated in the plan document) are credited each year to this hypothetical account balance.
Features of a Cash Balance Plan include:
Pension Review Services custom-designs cash balance plans in order to meet the objectives of the client. Design features include:
Read about some specific design opportunities for cash balance plans in our Case Studies section: “Owners do not have the same objectives…but all can be met!” and “Lower taxes while saving for retirement…”.
Also see our newsletter, “Have You Heard About the New Hybrids?”.