The Benefits of Cash Balance Plans - Withum

WITHUMSMITH+BROWN EMPLOYEE BENEFIT PLAN SERVICES GROUP Helping Retirement Plans “BE IN A POSITION OF STRENGTH”. C P , n w o r B THE BENEFITS OF CASH + h t i m S m BALANCE PLANS u h t i W by Joe Klinke, CPA, Senior Manager, WS+B Employee Benefit Plan Services Group, Princeton 1 1 0 2 © A cash balance plan is a special type defined benefit plans that guarantees participants earnings at a specified rate. This type of plan can offer an attractive alternative to a traditional defined benefit plan. The following offers a brief overview of some of the benefits of cash balance plans: Cash Balance Plan - Participant Perspective A cash balance plan is one

in which participants earn a monetary benefit for each year of service. The benefit is banked and at the end of each succeeding year, interest, at the rate stipulated in the plan, is added. The whole process being similar to a savings ac count, for which a deposit is made on an established annual date. Participants benefit, since they incur no investment risk. Younger participants frequently find this type of plan attractive because the benefit is generally portable and unlike a trad itional pension plan the benefit's value at any point in time is readily determinable. Cash Balance Plan - Sponsor Perspective Cash balance plans can be more attractive to sponsors with an ageing work force because the annual benefits don't escalate as employees approach retirement age, as they would in a traditional pension plan. However, if this is a transition plan there m ay be a need to have a transition feature that protects older workers, in order for the plan not to be deemed discriminatory. W ell thought out cash balance plans can be significantly more cost effective than traditional pension plans. Plan administrators, interested in cash balance plans are advised to speak to their retirement plan consultant to gain a more complete understanding of the costs and benefits of cash balance defined benefit plans. NEED MORE INFORMATION? If you need more information regarding this or any other topic affecting your retirement plan, visit our Withum ERISA Knowledge Corner online, follow us on Twitter at WSB_ERISA or contact us at ERISAhelp@withum.com to arrange a free consultation today. The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances....

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