Third Party Administrator
in Augusta, GA

Cash balance plans represent a hybrid retirement savings option amalgamating aspects of traditional defined benefit and defined contribution plans. Within this structure, employers allocate a portion of each employee’s pay into an individual account, which accrues contributions at a fixed interest rate or one linked to an investment index.

Here’s the breakdown of how cash balance plans function:

Employer Contributions: Employers designate a set percentage of an employee’s pay to be deposited into their cash balance account, typically determined by a fraction of the employee’s salary.

Interest Credits: Contributions made by the employer accumulate interest credits, typically pegged to a predetermined rate or an index such as the yield on long-term Treasury securities.

Account Growth: Over time, the employee’s cash balance account grows through contributions and interest credits. Unlike traditional defined contribution plans like 401(k)s, this growth isn’t contingent on the performance of specific investments chosen by the employee.

Portability: An advantageous aspect of cash balance plans is their portability. Employees departing the company can usually transfer their cash balance account to another retirement plan, like an IRA or their new employer’s retirement scheme.

Distribution Options: Upon reaching retirement age or eligibility for distributions, employees typically have the option to receive their funds as a lump sum or periodic payments akin to an annuity.

Cash balance plans hold appeal for both employers and employees for various reasons. Employers appreciate the predictability in retirement benefit costs compared to traditional defined benefit plans. Meanwhile, employees enjoy a guaranteed benefit shielded from market fluctuations, coupled with some flexibility regarding investment options and distribution preferences.