Cash Balance Plan FAQs

A cash balance plan is a type of defined benefit retirement plan that credits participants’ accounts with a set percentage of their salary each year plus interest. It combines features of traditional pensions and defined contribution plans.

A cash balance plan provides the guaranteed benefits of a defined benefit plan while expressing these benefits as a hypothetical account balance, similar to a defined contribution plan. This structure offers predictable retirement income with individual account-like statements.

Cash balance plans allow employers to make large tax-deductible contributions, which can significantly reduce taxable income. Employees benefit from tax-deferred growth on plan contributions and earnings until retirement.

High-income earners, business owners, and professionals looking to maximize retirement contributions and reduce taxable income benefit most from a cash balance plan. It is particularly advantageous for those seeking predictable retirement income.