The number of cash balance retirement plans, and the amount of assets they hold, are both on the rise, boosting the percentage of the retirement plan market.
That's according to the "2016 National Cash Balance Research Report" from retirement plan designer/administrator Kravitz Inc., which found that the number of such plans had risen 19 percent over the last decade to 15,178 in 2014, the most recent year for which complete IRS reporting data is available. In contrast, the 401(k) market grew by just 2 percent over the same period.
In addition, the assets in such plans has reached $1 trillion. According to the report, those figures are the culmination of 10 years of annual double-digit growth in such plans, as their tax benefits and legislative changes that made such plans easier for plan sponsors to administer have encouraged employers to offer them.
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Cash balance plans, also referred to as hybrid plans, are defined benefit plans, as opposed to 401(k)s, which are defined contribution plans. However, cash balance plans differ from conventional defined benefit plans, according to the U.S. Department of Labor, in that they generally do not depend on workers contributing a portion of their compensation to the plan.
In addition, instead of defining the benefit for the employee as a specific benefit at retirement, cash balance plans define the promised benefit in terms of a stated account balance. Investment risks are borne by the employer, with either the employer or an appointed investment manager handling investment choices, and the plans are required to offer employees the ability to receive their benefits in the form of lifetime annuities.
Cash balance plans are also federally guaranteed, with the Pension Benefit Guaranty Corp. stepping in to pay benefits, up to the limits set by law, should a plan be terminated with insufficient funds to pay all promised benefits.
The report also said that 91 percent of all cash balance plans are at firms with fewer than 100 employees, and they now make up 29 percent of all defined benefit plans; in 2001, they made up just 2.9 percent.
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