Cash Balance Pension Plan

AAA

DEFINITION of 'Cash Balance Pension Plan'

A pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest charges. A cash balance pension plan is a defined-benefit plan. As such, the plan's funding limits, funding requirements and investment risk are based on defined-benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination, the company solely bears all ownership of profits and losses in the portfolio.

INVESTOPEDIA EXPLAINS 'Cash Balance Pension Plan'

Although the cash balance pension plan is a defined-benefit plan, unlike the regular defined-benefit plan, the cash balance plan is maintained on an individual account basis, much like a defined-contribution plan. The cash balance plan acts similar to a defined-contribution plan also because changes in the value of the participant's portfolio does not affect the yearly contribution.

RELATED TERMS
  1. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  2. Pension Plan Administrator

    An individual responsible for managing the day-to-day affairs ...
  3. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  4. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  5. Plan Participant

    A plan participant either contributes into a pension plan or ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
Related Articles
  1. Retirement

    Money Can't Buy Retirement Bliss

    Emotional snags can ruin your future happiness. Learn how you can avoid them.
  2. Retirement

    What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks and advantages.
  3. Professionals

    Just Retired? No Better Time for a Second Career

    After working for decades and reaching retirement age, what's next? A second career, of course. Here's why and how.
  4. Retirement

    How does the Canada Pension Plan (CPP) work, and what asset mix does it hold?

    Learn the difference between a chartered financial analyst and the Canadian pension plan. Explore Canadian retirement options and how the CPP is invested.
  5. Professionals

    When Your Client's Retirement is Around the Corner

    With thousands of Baby Boomers reaching retirement age every day, here's a guide as to how financial advisors should approach and advise them.
  6. Professionals

    A New Wake-up Call for Savers

    Recent findings from an index that measures how many people who are at risk of not being able to maintain their current standard of living in retirement.
  7. Professionals

    Retirement Bliss? Not So fast: When Savings Lag

    Most people aren't saving enough for retirement. Here are some tips savers and financial advisors can use to change that.
  8. Professionals

    Monthly Pension Or Lump-Sum: Which Is Better?

    When a client is faced with the choice of a monthly pension or a lump-sum payment, which one is better? Here's a quick guide on how to decide.
  9. Professionals

    Financial Planning Tips And Resources For Veterans

    Veterans or all kinds have special needs when it comes to financial planning. Here are some tips as well as a comprehensive list of online resources.
  10. Professionals

    Where You Clients Should Retire (For Tax Reasons)

    Are your clients asking where they should retire? That's a tough call, but here we cover the tax angle.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center