At Trinity, we excel in designing Cash Balance Plans that are above ordinary.
They are ideal and tailored to your unique needs. With our expertise and in-house actuarial team, we transform complex pension concepts into straightforward, understandable solutions.
Below we have answered the most common questions about Cash Balance Plans.
First, What is a Cash Balance Plan?
A Cash Balance Plan is a type of IRS-qualified savings account offered by some employers. It's a hybrid retirement plan that combines elements of both defined benefit and defined contribution plans.
The unique feature of a Cash Balance plan is that the account balance is stated as a hypothetical account balance, rather than a specific set of investments like a 401(k) plan. This means that employees don't directly invest their contributions in the stock market or other investment vehicles; instead, the employer guarantees a certain rate of return on the contributions.
How does it work?
In a Cash Balance Plan, the account grows in two ways. First, through an annual pay credit that is a company contribution. Second, through an annual interest credit from the investment performance of the plan's assets. These contributions typically grow at a fixed rate of interest, similar to a traditional defined benefit plan.
When employees retire or leave the company, they can typically choose between taking their Cash Balance account balance as a lump sum payment or converting it into an annuity that provides regular payments throughout retirement.
Cash Balance plans offer Employers significantly larger contributions and tax savings opportunities compared to other qualified retirement plans.
