The Cash Balance Plan

I don’t have a traditional pension.  No surprise there.  According to a July, 2011 article in US News (http://money.usnews.com/money/retirement/articles/2011/07/22/21-workplace-benefits-that-are-rapidly-disappearing), only 22% of firms provide access to a retirement plan that guarantees payments for life.

I do have a cash balance Plan.  According to the Department of Labor, a cash balance plan is defined as “a type of defined benefit [pension] plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance.” (http://www.dol.gov/ebsa/FAQs/faq_consumer_cashbalanceplans.html )

So basically, when I retire, what I have in the cash balance plan is what I get.  My cash balance continues to earn interest; however, three years ago my company made the decision to discontinue making contributions to employee accounts.  No surprise there, either.  Many companies now offer only the 401K plan for employee retirement savings. 

Thankfully, my company still offers a generous match to my 401K contributions.  I don’t expect to need to draw on my 401K for many years – and of course, I can’t until I’m 59 ½ anyway.  But I’ll need to make a decision on what to do with the cash balance plan funds.

The Department of Labor site indicates that my options are to take the entire amount in a lump sum, or to annuitize the amount over my lifetime.  My company’s retirement planning guide goes into greater detail, and also indicates that leaving my benefit in the Cash Balance Plan is an option.  It would continue to earn interest until I made the decision to start distribution – until I turn 70 ½ at which time I would be required to begin distribution.