Cash Balance

A Cash Balance Plan is a Defined Benefit plan that defines the benefit in terms that are more characteristic of a Defined Contribution Plan. In other words, a Cash Balance Plan defines the promised benefit in terms of a stated account balance.

In a typical Cash Balance Plan, a participant’s account is credited each year with a “pay credit” (such as 5 percent of compensation from his or her employer) and an “interest credit” (either a fixed rate or a variable rate that is linked to an index such as the one-year Treasury bill rate). Increases and decreases in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.

When a participant becomes entitled to receive benefits under a Cash Balance Plan, the benefits that are received are defined in terms of an account balance. For example, assume that a participant has an account balance of $100,000 when he or she reaches age 65. If the participant decides to retire at that time, he or she would have the right to an annuity based on that account balance. Such an annuity might be approximately $8500 per year for life. In many Cash Balance Plans, however, the participant could instead choose (with consent from his or her spouse) to take a lump sum benefit equal to the $100,000 account balance.

2015 Cash Balance Guide

New IRS Guidelines are Turbo Charging Retirement Plans

2015 Cash Balance and 401(k) Contribution Limits

Is a Cash Balance Plan the “Right” Fit For Your Business?

For more information or to set up a free consultation to discuss the retirement plan option that is right for your business contact NestEggs.

 

 

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