Cash balance pension plan becoming more popular with companies
POSTED: Monday, May 6, 2013 - 6:32pm
UPDATED: Tuesday, May 7, 2013 - 12:09pm
Tyler , TX (KETK) — Many companies are offering another retirement plan for their employees.
It's called the cash balance pension plan.
The cash balance pension plan is becoming very popular.
The plan's expenses, unlike a 401k, are solely on the employer.
The employee does not contribute directly to the plan or have anything deducted from their paycheck as with traditional pension plans.
Instead the amount of total benefits that an employee is hypothetically eligible for is expressed as an account balance.
"This could be somewhat of a hybrid between the two and open up the doors for a pension plan for employees who may not of had one," said Jay Oliver financial adviser at Rose Point Capital.
The participant is guaranteed a benefit based on the account balance and not on a series of monthly payments.
According to Sage Advisor, your company contributes money into a hypothetical account for each employee based on a set interest crediting rate and a percentage of the employee's annual salary.
Oliver says many employers choose this plan over a traditional defined benefit pension because the liability to the employer is less.
''Rather than them obligated to pay an income to the retiree for life, for instance their obligation is to provide this lump sum payment at retirement so their liability is limited to that payment rather than a stream of payments over the lifetime of an employee at retirement.
Oliver also says if you leave a company before retirement age, you can take the contents of your cash balance plan as a lump sum and roll over those amounts into an IRA.
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