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Adopting cash balance pension plans: implications and issues

Published online by Cambridge University Press:  21 December 2004

ROBERT L. CLARK
Affiliation:
College of Management, North Carolina State University (e-mail: robert_clark@ncsu.edu)
SYLVESTER J. SCHIEBER
Affiliation:
Watson Wyatt Worldwide (e-mail: syl.schieber@watsonwyatt.com)

Extract

Over the past 15 to 20 years, many companies have converted their traditional defined benefit plans to cash balance or pension equity plans. In a cash balance plan, the worker's ‘account’ is based on an annual contribution rate for each year of employment, plus accumulating interest on annual contributions. A pension equity plan defines the benefit as a percentage of final average earnings for each year of service under the plan. Both types of plans specify the benefit as a lump sum payable at termination. In contrast, traditional defined benefit plans specify benefits in terms of an annuity payable at retirement. From the employees' perspective, cash balance and pension equity plans look somewhat like defined contribution plans. However, they are funded, administered, and regulated as defined benefit plans.

Type
Articles
Copyright
© 2004 Cambridge University Press

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