Employers Seek Benefits In Cash Balance Pensions

Much maligned a few years ago, cash balance plans now have a chance to be a useful cost-cutting tool for pension plan sponsors.

Cash balance plans are on the verge of a comeback. More firms with old-style pensions will consider converting to these “hybrid” plans in the next year or two because the IRS now has a roadmap for employers to follow to ensure that they don’t run afoul of age discrimination laws.

Switching a firm’s pension to a cash balance plan instead of just freezing the pension has this advantage: A pension’s otherwise big, ongoing legacy costs decline more rapidly in a cash balance plan because benefits typically are paid out in a lump sum at retirement, removing each participant from the company’s books as he or she retires.

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Senior Tax Editor, the Kiplinger letters