Cash Balance Pension Schemes

Cash Balance Pension Schemes

Cash Balance Pension Schemes

Defined benefit plans may have decreased in popularity with many employers in recent years, but some still offer them as an alternative to defined contribution retirement accounts. How do defined benefits differ from contribution-based savings and how does a pension or cash balance plan work?

What are Defined Benefit Plans?

These are generally fully employer-funded retirement savings accounts. Unlike defined contribution plans, such as 401(k)s, the worker will not necessarily have to save into the plan as all contributions may be made by the employer. At retirement, the account will either provide a set regular income or a lump sum payment (or a combination of the two) depending on the type of benefits on offer. The most common options here are pensions and cash balance plans.