Define: Cash Balance Plan

A cash balance plan is a type of retirement plan that combines features of both a traditional pension plan and a 401(k) plan. It provides employees with a guaranteed benefit at retirement, based on a hypothetical account balance.

In a cash balance plan, the employer contributes a percentage of the employee’s salary to the plan each year, and the plan credits interest to the employee’s hypothetical account balance. When the employee retires or leaves the company, they can receive the accumulated balance as a lump sum or as an annuity.

Yes, cash balance plans are legal retirement plans that are regulated by the Employee Retirement Income Security Act (ERISA) and must comply with IRS regulations.

Yes, cash balance plans are insured by the PBGC, which provides a safety net for participants in the event that the plan is terminated and does not have enough assets to pay benefits.

No, employees cannot make contributions to a cash balance plan. Contributions are made solely by the employer.

Unlike 401(k) plans, cash balance plans generally do not allow for loans or withdrawals. The funds in the plan are typically only accessible upon retirement or termination of employment.

Yes, employers have the ability to terminate a cash balance plan, but they must follow specific procedures and provide notice to plan participants.

Cash balance plans may have eligibility requirements based on age and years of service, but these requirements can vary by plan.

Yes, employees can typically choose to receive their cash balance plan benefits as a lump sum distribution upon retirement or termination of employment. However, they may also have the option to receive their benefits as an annuity.