Employers can easily meet this disclosure requirement by sending participants a summary description or a copy of the plan amendment 15 days before its effective date. Additional information about plan amendments is necessary, but not sufficient, to safeguard the financial interests of mid-career and older plan participants who may be adversely affected by conversions to cash balance pension plans. Some older workers are likely to be hit particularly hard. They may lose a more generous defined benefit accrual formula at a time when their advanced age will prevent them from earning a comparable benefit under the new cash balance formula. In a cash balance plan, an employer contributes a percentage of pay into hypothetical accounts for plan participants and credits interest to those accounts at a rate or index of rates set by the employer.
Employees receive periodic statements outlining their accumulated pay and interest credits.
Advantages of Cash Balance Plans for Employers and Younger Workers Cash balance plans provide employers with the funding flexibility of traditional defined benefit plans, along with predictable contribution levels that better enable them to budget for future pension plan costs. Cash balance plans also allow employers to distribute those costs more evenly over covered populations. Therefore, funding expenses are more level over the course of each employee's career. Moreover, because a more substantial share of total lifetime benefits accrues earlier under a career average formula than under a final pay formula, younger workers are likely to place a greater value on a cash balance plan than on a traditional defined benefit plan under which most of the benefit is earned in the years just prior to retirement. In other words, cash balance plans give younger workers more meaningful benefits at an earlier time in their careers, and then continue to spread those benefits evenly over the remainder of their careers.