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A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan.The hypothetical nature of the individual accounts was crucial in the early adoption of such plans because it enabled conversion of traditional plans without declaring a plan termination.
The firm was founded in 1944 by H. Charles "Chick" Kwasha and Maurice Lipton. [citation needed] Kwasha Lipton is best known for creating a type of defined benefit pension plan called a cash balance plan (CBP), which it designed for the employees of Bank of America in 1985.
The cash balance plan typically offers a lump sum at and often before normal retirement age. However, as is the case with all defined benefit plans, a cash balance plan must also provide the option of receiving the benefit as a life annuity. The amount of the annuity benefit must be definitely determinable as per IRS regulation 1.412-1.
Pension administration in the United States is the act of performing various types of yearly service on an organizational retirement plan, such as a 401(k), profit sharing plan, defined benefit plan, or cash balance plan. Increasingly, employers are also implementing these plan types in combination arrangements for greater contribution ...
Under a cash balance type of plan, benefits are computed as a percentage of each employee's account balance. Employers specify a contribution—usually based on a percentage of the employee's earnings—and a rate of interest on that contribution that will provide a predetermined amount at retirement, usually in the form of a lump sum.
Cash balance plans, for example, provide a guaranteed benefit like a defined benefit plan, but the benefit is expressed as an account balance, like a defined contribution plan. Pension equity plans are a type of cash balance plan that credits employee accounts with a percentage of their pay each year, similar to a defined contribution plan.
A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. [1] Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employee contributions and, if applicable, employer contributions) plus any investment earnings on the money in the account.
A common variable pay plan might be the sales person receives 50% of every dollar they bring in up to a level of revenue at which they then bump up to 85% for every dollar they bring in going forward. Typically, this type of plan is based on an annual period of time requiring a "resetting" each year back to the starting point of 50%.