Cash balance plans don't have this early retirement subsidy because they accrue like a savings plan, at a very steady rate. And they can't be fired because of potential age discrimination suits. Cash balance programs can avoid this problem, because the pot of gold is evenly stretched out over the years of employment. A traditional pension benefit plan defines the employee benefit as a monthly retirement income, explained Steven Vernon, also a consultant at Watson Wyatt Worldwide in Los Angeles. It says you are going to get 1 percent of your pay times years of service times average earnings, and that is your monthly pension.
Hybrid plans are account-oriented.
People don't understand the traditional plan, nor do they appreciate it very much. Companies are paying a bunch of money into employees' plans and the employees don't appreciate it, which means the companies aren't getting their money's worth from the plans. In a hybrid defined benefit plan, there is an account value, and the employee can get a monthly statement and understand the value of the account. However, the pension plan is fully funded by Bell Atlantic and requires no employee contribution. In addition, the company bears 100 percent of the investment risk.