In addition, since cash balance plans are defined benefit plans, the benefits are insured, up to a certain level, by the federal government's Pension Benefit Guaranty Corporation program. Defined contribution plans are not covered by this program. Employers find it easier to calculate their annual pension expense in a cash balance plan compared to a traditional defined benefit plan. Cash balance plans are easily coordinated with other benefit plans of an employer. Employers don't have to fund the total accruals each year.
Funding is determined actuarially and includes some flexibility.
Excess assets in a traditional defined benefit plan can be used to fund future accruals after a conversion. Investment earnings in excess of the guaranteed interest rate can reduce the employer's future funding requirements. The biggest drawback of cash balance plans concerns older workers, particularly those who have been with the company for a long time when a conversion from a traditional plan takes place. These employees were expecting a certain projected benefit at retirement, the bulk of which would have accrued in the last 10 or 15 years of service. Under a conversion, they may suffer a significant reduction in the amount of their future benefit accruals.