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Why Cash Balance Plan over Traditional Defined Benefit Plans

Disadvantages of Traditional Defined Benefit Plans:
Final average pay plans weigh benefits heavily in favor of final years of work
Employees do not relate to the benefits being provided
Weighted by age as well as salary -older employees cost more than younger
Employees who earn the same amount
In the context of small and professional employers, contributions paid do not track directly to benefits paid, requiring eventual adjustments between partners/shareholders when benefits are paid.
Advantages of Cash Balance Plans?
Career average benefit pattern – avoids the heavy weighting of benefits
To final years of work.
Employees have a much better understanding of their benefits.
It allows a direct tracking of contributions to ultimate benefits paid.
Age-neutral contributions for employees.
A CB plan can be designed to fund a buy-out for partners.
Almost all new DB plans set up will be Cash Balance Plans Рthere is nothing a Traditional DB plan offers that is not delivered in a better way by a Cash Balance plan.

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