Got a Cash Balance Pension? Understand Your Options

To maximize your retirement income, you need to know how your cash balance plan works, which type of payout is right for you and how it’s taxed.

A seesaw with a clock at one end and a roll of cash at the other.
(Image credit: Getty Images)

As traditional pension plans have largely disappeared over the years, many Baby Boomers heading into retirement today will by relying on cash balance pension plans instead. Understanding how to make the most of this employer benefit becomes increasingly important as one nears retirement.

Cash balance pension plans became popular in the late 1980s and early 1990s, especially with companies such as IBM, Xerox and AT&T, which at the time had large liabilities in their traditional defined benefit pensions. Cash balance pension plans emerged as a hybrid between traditional defined benefit plans (aka, a pension) and defined contribution plans (such as a 401(k) plan), offering employees a portable retirement benefit. The plans gained popularity among employers seeking to manage their costs and risks, while providing competitive retirement benefits.

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Mike Palmer, CFP
Managing Principal, Ark Royal Wealth Management

Mike Palmer has over 25 years of experience helping successful people make smart decisions about money. He is a graduate of the University of North Carolina at Chapel Hill and is a CERTIFIED FINANCIAL PLANNER™ professional. Mr. Palmer is a member of several professional organizations, including the National Association of Personal Financial Advisors (NAPFA) and past member of the TIAA-CREF Board of Advisors.