Are the concerns and issues surrounding cash balance retirement plans justified? Explain your rationale.
A cash balance pension plan, which is a type of hybrid plan, is a defined benefit plan that is similar to a defined contribution plan because the employee's promised future benefits are stated as an account balance. The account is hypothetical, meaning that each participant does not actually have an account, and is used to reflect the amount of benefits the individual has accrued. The account is made up of employer contributions that are a percentage of annual compensation, referred to as pay credit, and interest earned on those contributions, referred to as interest credits. Issues and concerns that have been controversial surrounding cash balance retirement plans include the negative effect of a plan conversion on older employees due to wear-away, the whipsaw effect that may occur when computing a lump-sum payment of benefits prior to normal retirement ...
The issues surrounding cash balance retirement plans justified.