What You Need to Know About Cash Balance Plans
Our team in Oklahoma City, OK can set you up with this type of defined benefit plan
Tristar Pension Consulting can set you up with a cash balance plan if it's your best option. To understand this plan, you should know the difference between defined benefit and defined contribution plans. With a defined benefit plan, participants will know exactly how much they'll receive at retirement. With a defined contribution plan, employers will state a percentage of compensation to invest. The resulting retirement benefit for participants is based on gains and losses from said investment.
Cash balance benefit plans are a type of defined benefit plan with terms similar to direct contribution plans. However, you'll have a guaranteed balance at retirement.
To learn more about cash balance benefit plans, speak to one of our team members in Oklahoma City, OK today.
Learn how cash balance plans function in three steps
Cash balance plans aren't as hard to understand as they may seem. Check out this breakdown of how they work:
- Payments are made to the account as plan credit. Plan credit is a stated percentage of compensation provided by the employer.
- In addition to plan credit, the participant receives interest credit. Think of this as a guaranteed rate of return.
- Every year, the employer deposits plan and interest credit. This money is then invested, with the employer taking the risk.
The employer must have enough money in the account to pay for promised benefits, and the participant's assets will be protected and insured while the plan is active.
Cash balance plans differ greatly from 401(k) plans. They don't require employee participation, have investment discretion or risk and offer installment payments. If you think a cash balance plan may be right for your business, contact us today.
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The Tristar Pension Consulting team is ready to help you begin your journey on the road to retirement. We will help you navigate the route for a smooth ride to and through retirement.