This is opposed to retirements under traditional defined benefit pension plans, where retirees are entitled to lifetime monthly annuities based upon years of service and pay.
When a participant retires under a cash balance plan, he or she is entitled to the balance of his or her vested benefit (similar to a defined contribution plan), which may be taken as an annuity or in a lump sum.
This entitlement is termed "vesting." In this approach, the benefit payment is defined.
Allocation and Delegation of Fiduciary Responsibility b. Employees/participants are entitled to the percentage of the benefits established under the plan.
ESOP Plans - Employer Securities Investments - Valuation (6). Pension plan benefits are generally paid out in the form of a life annuity beginning at the participant's normal retirement date.
Special Examination Applications of Fiduciary Responsibility Provisions (1). ESOP Plans - Employer Securities Investments - Prudence (5). The most common type of defined benefit plan is the traditional pension plan.
Self-Directed Custodial IRAs - Own Bank Deposits b. Other methods of paying benefits are installment payments and lump sum distributions, with options sometimes given to the participant.
In recent years, this type of plan has become increasingly popular.
Cash balance plans are similar to traditional defined benefit pension plans in that: (a) they guarantee a specific benefit upon retirement which is not dependent upon the plan's investment performance; (b) retirement benefits are payable as an annuity with surviving spouse protection; (c) employers must follow minimum funding policies under ERISA, and (d) basic plan benefits are guaranteed by the PBGC up to limits set by law.
Benefits calculated in this manner are said to be integrated with Social Security retirement benefits.
Compliance With the Employee Retirement Income Security Act of 1974 (ERISA) 1. Accounts Covered/Not Covered by ERISA - ERISA Section 401 3. In private plans, it is common for retirement benefits payable under the pension plan to be set in conjunction with Social Security benefits.