Under what circumstances an employer might want to switch from an existing defined benefit plan to...
Under what circumstances an employer might want to switch from an existing defined benefit plan to a cash balance plan, along with the implications of doing so.
Homework Answers
Cash Balance plans were developed as they came with benefits of
both defined benefits and defined contribution plans.An
hypothetical account could be created and the employer as the
employer does not actually set aside money for each account of the
employee. Since the employer guarantees each employee the benefit
it has characteristics of defined contribution plan. The advantage
for the same are:
- Increases the understanding of the retirement benefit
- It makes it easy to design the plan and makes calculation of benefits easy
- It inculcates the changing workforce dynamics of an organization
- Simplifies the communication for the employees.
- The costs are more easily modelled in such a plan
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Under what circumstances an employer might want to switch from
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