Cash balance plan
Certified Financial Planner glossary · Certified Financial Planner
Definition
A defined benefit plan expressed as a hypothetical account balance receiving annual pay credits and interest credits.
Cash balance plan in plain English
Staff see statements that look like account balances with pay credits and interest credits, yet the legal promise is still defined benefit. A cash balance plan is that hybrid: a DB plan expressed as a hypothetical account. The employer carries investment risk; the "account" is a communication device, not a participant-directed DC purse. Do not grade it with 401(k) deferral tests. On stems, look for pay credits, interest credits, and PBGC or DB funding language.
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