WHAT IS A CASH BALANCE PLAN?

Relatively new to the industry, a cash balance plan is a defined benefit plan with the characteristics of a defined contribution plan. The plan credits an employee’s account each year with a pay credit and an interest credit. The pay credit is dependent upon the participant’s compensation. At retirement, the participant is paid the accumulated value of these credits. Employer funding, however, is based upon actuarial assumptions and ERISA minimum funding standards. For this reason, funding may change according to the investment performance of the pension plan assets.

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