1. What is a Cash Balance Plan?

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 a stated account balance that grows with contributions and interest credits.

2. How Does the Calculator Work?

The calculator uses the cash balance formula:

Where:

• \( Contributions \) — Total contributions made to the plan ($)
• \( Interest \) — Interest earned on the account balance ($)
• \( Distributions \) — Any withdrawals or distributions taken ($)

Explanation: The formula calculates the current account balance by adding contributions and interest earned, then subtracting any distributions taken from the account.

3. Importance of Cash Balance Calculation

Details: Accurate cash balance calculation is crucial for retirement planning, understanding pension benefits, and making informed decisions about retirement savings and distributions.

4. Using the Calculator

Tips: Enter all values in dollars. Contributions and interest should be positive values, while distributions represent money taken out of the account.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between a cash balance plan and a 401(k)?
A: Cash balance plans are defined benefit plans with guaranteed returns, while 401(k)s are defined contribution plans where investment returns depend on market performance.

Q2: How is interest calculated in cash balance plans?
A: Interest is typically credited at a predetermined rate specified in the plan document, often tied to a benchmark like the 30-year Treasury rate.

Q3: Can I take distributions from my cash balance plan?
A: Distribution rules vary by plan, but typically you can take distributions upon retirement, termination, or meeting other plan-specific criteria.

Q4: Are cash balance plans protected?
A: Yes, cash balance plans are generally protected by the Pension Benefit Guaranty Corporation (PBGC), similar to traditional pension plans.

Q5: Who typically offers cash balance plans?
A: These are often offered by employers, particularly professional service firms, as part of their retirement benefits package.