Home
Back
Cash Balance Formula:
| From: | To: |
A Cash Balance Plan is a type of defined benefit pension plan that combines features of traditional pension plans with elements of defined contribution plans. It provides participants with individual accounts and guarantees a specific benefit at retirement.
The calculator uses the cash balance formula:
Where:
Explanation: The equation calculates the current balance in a cash balance plan by adding contributions and investment credits, then subtracting any benefits paid out.
Details: Accurate cash balance calculation is crucial for retirement planning, ensuring adequate funding of pension obligations, and complying with regulatory requirements for defined benefit plans.
Tips: Enter all values in dollars. Contributions, credits, and benefits should be positive numbers representing the monetary amounts in the plan.
Q1: What's the difference between cash balance and traditional pension plans?
A: Cash balance plans provide individual account statements and typically have more predictable benefit accruals, while traditional pensions calculate benefits based on final average salary and years of service.
Q2: How often are interest credits applied?
A: Interest credits are typically applied annually, based on a predetermined rate or index specified in the plan document.
Q3: Are cash balance plans protected?
A: Yes, cash balance plans are generally protected by the Pension Benefit Guaranty Corporation (PBGC), similar to traditional defined benefit plans.
Q4: Can employees contribute to cash balance plans?
A: Typically, only employers contribute to cash balance plans, unlike 401(k) plans where employees can make contributions.
Q5: How are benefits paid out from cash balance plans?
A: Benefits can typically be taken as a lump sum or converted to an annuity at retirement, depending on the plan provisions.