This chapter gives an overview of cash balance pension plans. After a brief discussion of when these plans are used, advantages and disadvantages, the chapter covers design features. Tax implications are discussed next, directing the reader back to Chapter 7 for additional information. | What is it? A qualified defined benefit plan that provides for annual employer contributions at a specified rate to hypothetical individual accounts that are set up for each plan participant Employer guarantees contribution level minimum rate of return on each account Copyright 2009, The National Underwriter Company When is it indicated? have relatively young employees with substantial years to accumulate earnings employees concerned with security of retirement income workforce large and most are middle-income Copyright 2009, The National Underwriter Company When is it indicated? employer able to spread administrative costs over relatively large group of employees employer wants to convert existing defined benefit plan to plan that provides more attractive benefit for younger employees may lower costs for older employees Copyright 2009, The National Underwriter Company Advantages Tax deferred savings some older employees may be able to use 10 year averaging employee does NOT have investment risk within limits, plan guaranteed by PBGC plan benefits easily communicated and understood Copyright 2009, The National Underwriter Company Disadvantages retirement benefit may be inadequate for older plan entrants complex to administer employer bears investment risk, increasing employer costs Copyright 2009, The National Underwriter Company Design Features of These Plans hypothetical individual account for each participant credits by employer at least annually with “pay credit” “interest credit” Copyright 2009, The National Underwriter Company Design Features of These Plans employer’s annual cost for plan determined on actuarial basis employer must make up difference if actual plan earnings fall short of total interest credits plan participants do not have investment choice loans can be made available but due to administrative problems are seldom offered Copyright 2009, The National Underwriter Company Design Features of These Plans Modification of | What is it? A qualified defined benefit plan that provides for annual employer contributions at a specified rate to hypothetical individual accounts that are set up for each plan participant Employer guarantees contribution level minimum rate of return on each account Copyright 2009, The National Underwriter Company When is it indicated? have relatively young employees with substantial years to accumulate earnings employees concerned with security of retirement income workforce large and most are middle-income Copyright 2009, The National Underwriter Company When is it indicated? employer able to spread administrative costs over relatively large group of employees employer wants to convert existing defined benefit plan to plan that provides more attractive benefit for younger employees may lower costs for older employees Copyright 2009, The National Underwriter Company Advantages Tax deferred savings some older employees may be able to use 10 year averaging employee does .
