Cash Balance Plans Overview
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 and rewards on plan assets are borne solely by the employer.
A cash balance plan is many times combined with a defined contribution plan (i.e. Safe Harbor 401(k) plan).
Retirement Strategies, LLC does not administer cash balance plans (as actuarial calculations are required). However, we do have alliances with actuarial firms if you are interested in establishing a combination Cash Balance/401(k) Plan.
If you would like to know more about cash balance plans, please Contact Us!