scholarly journals Are Cash Balance Pension Plans A Viable Retirement Program For Corporate America?

2012 ◽  
Vol 10 (8) ◽  
pp. 451
Author(s):  
John J. Lucas
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Recent Trends ◽  
Program Option ◽  
Cash Balance Pension Plans

Cash Balance Pension Plans are a defined benefit plan where employees have a hypothetical account that increases annually, as a result of compensation credit as well as interest credit. In essence, cash balance pension plans combine elements of both a traditional defined benefit plan and a defined contribution plan (Lucas, 2007). This paper examines the recent trends and legal ruling regarding cash balance pension plans. The paper also provides an examination of the role of the Pension Protection Act (PPA) of 2006 and its impact on cash balance pension plans. An evaluation will also be presented to determine if cash balance pension plans are a viable retirement program option in corporate America.

scholarly journals Life After Defined Benefit Plans

2011 ◽  
Vol 4 (8) ◽  
Author(s):  
Martin A. Goldberg ◽  
Robert E. Wnek ◽  
Michael J. Rolleri
Keyword(s):  
Pension Plan ◽  
Profit Sharing ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Defined Contribution Plans ◽  
Defined Benefit Plans ◽  
Recent Developments

Employers have moved from traditional pension plans to cash balance and other alternative defined benefit plans. However, it may be that the best approach lies beyond defined benefit plans completely. The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to protect workers. Its focus was on the defined benefit plan, which at that time meant a traditional pension plan that provided lifetime income to retired workers. Over the years traditional pension plans have declined in number, often due to their increasing costs. Many of these plans have been replaced by the 401(k) plan, a profit-sharing plan partly or wholly funded by employee contributions. There has also been a rise in hybrid plans, plans that have features of both defined benefit and defined contribution plans. Recent developments highlight the weaknesses in traditional pension plans. Replacing a traditional pension plan with a cash balance plan, a hybrid plan that qualifies as a defined benefit plan, does not fully address all the problems. It may be that there is limited advantage to the continued emphasis on defined benefit plans. Instead, defined contribution plans that contain some features of defined benefit plans may better address the current retirement-plan issues.

Case Study

1998 ◽  
Vol 30 (6) ◽  
pp. 25-31 ◽  
Author(s):  
Harold W. Burlingame ◽  
Michael J. Gulotta
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Retirement Benefits ◽  
Strategic Objectives

The potential for using a cash balance pension plan as a restructuring tool is one reason it is gaining favor throughout corporate America. Another reason is that it can give employees a better understanding and appreciation of their retirement benefits. Both reasons are important at a time when companies are changing rapidly and sometimes downsizing and when employees are less likely to stay in one place long enough to anticipate reaping the rewards of a defined bene-fit plan. Cash balance plans combine some of the best features of defined contribution (DC) and defined benefit (DB) plans. For employers, they provide more flexibility than traditional DB plans and help companies achieve their strategic objectives. For employees, they better meet the needs of a changing workforce by delivering portable, easily understood benefits. Since 1985, more than 200 companies have replaced their DB pension plans with a cash bal-ance design. One of the newest and most enthu-siastic proponents is AT&T, which, with the help of consulting firm ASA, Inc., designed a cash bal-. ance plan to help meet its restructuring goals.

scholarly journals Cash Balance Pension Plans: Good News or Bad News?

2011 ◽  
Vol 18 (3) ◽  
Author(s):  
Arundhati Rao ◽  
Leslee Higgins ◽  
Sandra Taylor
Keyword(s):  
Financial Incentive ◽  
Pension Plans ◽  
Bad News ◽  
Good News ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Net Income ◽  
Cash Balance ◽  
Defined Benefit Plans ◽  
Cash Balance Pension Plans

<span>Modification of defined benefit plans and conversion of defined contribution plans into Cash Balance Pension Plans (CBPs) has attracted a lot of attention recently.  A comparison of the three plans and an examination of 10 companies reveal a significant financial incentive in favor of CBPs.  The “good news” for a younger employee is level accrual of benefits and plan portability, and for stockholders, a smaller impact on net income.  CBPs bear “bad news” for older and/or less mobile employees and the stockholders when the plan assets perform poorly. </span>

Adopting cash balance pension plans: implications and issues

2004 ◽  
Vol 3 (3) ◽  
pp. 271-295 ◽  
Author(s):  
ROBERT L. CLARK ◽  
SYLVESTER J. SCHIEBER
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Contribution Rate ◽  
Cash Balance ◽  
The Past ◽  
Defined Contribution Plans ◽  
Lump Sum ◽  
Defined Benefit Plans ◽  
Cash Balance Pension Plans

Over the past 15 to 20 years, many companies have converted their traditional defined benefit plans to cash balance or pension equity plans. In a cash balance plan, the worker's ‘account’ is based on an annual contribution rate for each year of employment, plus accumulating interest on annual contributions. A pension equity plan defines the benefit as a percentage of final average earnings for each year of service under the plan. Both types of plans specify the benefit as a lump sum payable at termination. In contrast, traditional defined benefit plans specify benefits in terms of an annuity payable at retirement. From the employees' perspective, cash balance and pension equity plans look somewhat like defined contribution plans. However, they are funded, administered, and regulated as defined benefit plans.

Hybrid Cash Balance and Pension Equity Plans: Origins and Development

2021 ◽  
pp. 088636872110052
Author(s):  
John G. Kilgour
Keyword(s):  
The United States ◽  
Fortune 500 ◽  
Pension Plans ◽  
Retirement Income ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Fully Functioning ◽  
Small Employers ◽  
Do So

It is widely recognized that there has been a massive shift from defined-benefit (DB) to defined-contribution pension plans. However, the full extent of that shift from fully functioning DB plans is generally understated. This article measures and relates the extent of that understatement and its importance for retirement income. It then discusses the increasing importance of cash balance and pension equity plans and their legality. It then conducts an in-depth discussion of large (Fortune 500) employers, small- and medium-sized employers, and then very small employers (25 or fewer active participants). It concludes that retirement income plans in the United States are far from static. Indeed, they have evolved throughout the era and will continue to do so in the future.

scholarly journals Cash Balance Pension Plan Conversions: An Analysis Of Motivations And Pension Costs

2013 ◽  
Vol 29 (2) ◽  
pp. 621 ◽  
Author(s):  
Julia D’Souza ◽  
John Jacob, (Deceased) ◽  
Barbara Lougee
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Expected Return ◽  
Defined Contribution Plans ◽  
Prior Service ◽  
Pension Costs ◽  
Positive Effect

In recent years, many corporations have replaced their traditional defined benefit (DB) pension plans with cash balance (CB) plans, which share many of the characteristics of defined contribution plans. This study provides empirical evidence on the characteristics of CB converters and the behavior of pension costs and obligations pre- and post-conversion. We find that CB converters are larger than firms that retain traditional DB plans as well as those that terminate DB plans. They are less profitable than the former, but more profitable than the latter. CB conversions are not associated with proxies for greater labor mobility (e.g., firm-specific employee turnover rate). They are associated with a workforce that is closer to retirement, on average, lending credence to the breach of implicit contract rather than the labor market hypothesis as a motivator of CB conversions. Consistent with this intuition, we document that CB converters recognize a reduction of unrecognized prior service costs in the year of conversion, consistent with a negative plan amendment. Unlike pre-conversion, pension costs and obligations are significantly lower for CB firms post-conversion than for a matched sample of firms retaining traditional DB plans. CB conversions are more popular than DB plan terminations among firms with overfunded pension plans in periods when expected return on plan assets is likely to be high, with a consequent positive effect on reported income.

Transitions from career employment among public- and private-sector workers

2019 ◽  
Vol 18 (04) ◽  
pp. 529-548 ◽  
Author(s):  
Joseph F. Quinn ◽  
Kevin E. Cahill ◽  
Michael D. Giandrea
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Pension Plans ◽  
Full Time ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private And Public ◽  
Public And Private Sector ◽  
Career Employment ◽  
Public Sector Workers

AbstractDo the retirement patterns of public-sector workers differ from those in the private sector? The latter typically face a retirement landscape with exposure to market uncertainties through defined-contribution pension plans and private saving. Public-sector workers, in contrast, are often covered by defined-benefit pension plans that encourage retirement at relatively young ages and offer financial security at older ages. We examine how private- and public-sector workers transition from full-time career employment, with a focus on the importance of gradual retirement. To our surprise, we find that the prevalence of continued work after career employment, predominantly on bridge jobs with new employers, is very similar in the two sectors, a result with important implications in a rapidly aging society.

The Cost and Duration of Cash-Balance Pension Plans

2001 ◽  
Vol 57 (6) ◽  
pp. 50-62 ◽  
Author(s):  
David T. Brown ◽  
Philip H. Dybvig ◽  
William J. Marshall
Keyword(s):  
Pension Plans ◽  
Cash Balance ◽  
The Cost ◽  
Cash Balance Pension Plans
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