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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. |
