Participants earn benefits evenly over their working careers. The employer controls the investment direction of plan assets and can take advantage of investment strategies that may yield more than the promised interest credits. Range of contribution levels and no contribution if the plan is overfunded. Plan design flexibility to provide early retirement subsidies or reward selected groups of employees. Plan must meet minimum funding requirements of a DB plan.
Employer is at risk for the promised interest credit regardless of actual investment results.
Transition from a traditional DB plan can be difficult and may require special arrangements for employees nearing retirement. Plan administration can be more costly than either a DB or DC plan as cash balance plans require both actuarial work and the maintenance of individual accounts. A pension equity plan is also a defined benefit plan in which the benefit is expressed as a lump sum. For each year worked, the participant is credited with a percentage that will be applied against their final average earnings. At termination or retirement, the participant is entitled to receive a lump-sum benefit equal to final average earnings multiplied by the sum of the percentages earning during his or her career.