Definition of "Cash-balance plan"

Colette Freiwald real estate agent
Colette Freiwald, Real Estate Agent Keller Williams Realty

Hybrid pension plan that provides for the employer to contribute annually a hypothetical percentage, usually 4 to 5%, of the employee's salary to a hypothetical account. This employee's account is then credited with a hypothetical annual interest rate generally tied to the 30-year United States Treasury rate. If the employee should change employment, the account balance can be transferred to an individual retirement account (IRA), subject to certain restrictions peculiar to each employer. For example, some employers restrict the withdrawal of a terminating employee to an amount no greater than the employee's one-year salary with the account's balance to be paid out as a monthly income benefit. When the employee retires at age 65 most of these plans have a five-year vesting requirement.

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