Wednesday, September 4, 2013

What is a Cash Balance Plan? | Manning & Napier

What is a Cash Balance Plan? | Manning & Napier | Rochester, NYWhat is a Cash Balance Plan? A White Paper by Manning & Napier Unless otherwise noted, all figures are based in USD. 1 What is a Cash Balance Plan? | A White Paper by Manning & Napier Cash Balance Plans have been around for many years, Because a Cash Balance Plan is a DB Plan, it provides but were fraught with controversy stemming from age- guaranteed benefi ts for employees. Cash Balance discrimination lawsuits brought against plan sponsors Plans are often referred to as hybrid plans, because who converted their traditional Defined Benefit (DB) while technically DB Plans, they are perceived as DC Plans to Cash Balance Plans. It was not until the passage Plans to

participants. They are like DC Plans because of the Pension Protection Act of 2006 (PPA) that plan they provide benefits to employees by alluding to an sponsors finally received a green light to implement cash account balance that is hypothetical. Contributions to this balance plans without fear. Since then, these plans have hypothetical account are typically based on a percentage regained popularity, especially among small- to mid-sized of compensation. The hypothetical account is credited professional businesses. with interest each year based on some objective index or other amount as defined in the plan document. While Here are some statistics that illustrate the demographics of similar to DC Plans in appearance, it is important to note Cash Balance Plans among small- to mid-sized employers. that Cash Balance Plans are significantly different from the 1 As of 2012 : employer’s standpoint than DC Plans because the actual • 84% of Cash Balance Plans are sponsored by employers plan assets are unrelated to the hypothetical account and with fewer than 100 employees; cannot be separated into individual participant accounts. • 71% of Cash Balance Plans have 24 or fewer participants; Traditional Final Average Pay • 46% of Cash Balance Plans had less than 10 Defined Benefit Plans In a traditional final average pay DB Plan, the benefit participants, and 25% of plans had 10 to 24 participants; formula might look something like: “10% of average • 97% of Cash Balance Plans are paired with a Profi t monthly compensation multiplied by years of participation Sharing or 401(k) Plan; up to a maximum of ten.” Accordingly, an individual aged • 56% of Cash Balance Plans are sponsored by medical, 55 years, with a constant average monthly compensation dental, scientific, technical, and legal firms. of $17,083.33 and ten years of participation, will earn a projected monthly benefit at age 65 of $7,083.33. Or, A Type of Defi ned Benefi t Plan (10%)($17,083.33)(10) = $17,083.33. The form of this A Cash Balance Plan is a type of DB Plan, but works a benefit is assumed to be a single-life annuity. At each little differently. To illustrate the difference, we first review year along the way, the individual earns a fraction of what a DB Plan is and then compare a traditional DB the projected benefit. This fraction is called the accrued Plan...

Website: | Filesize: 49kb
No of Page(s): 6
Download What is a Cash Balance Plan? | Manning & Napier | Rochester, NY.pdf

No comments:

Post a Comment