Without defined benefit plans, a stronger Social Security pillar may be necessary. Congress should increase employer payroll taxes to fund enhanced Social Security benefits. Finally, Congress should abolish tax referral through nonqualified plans, so all workers are subject to the same tax rules. Keep dreaming, Lady. Supporters of cash balance plans claim they are an appropriate response to changing work patterns and a key element in preserving the defined benefit system.
Opponents claim they are discriminatory and unfair to older employees.
There is no reference to cash balance plans in the Internal Revenue Code of 1986. An employee's hypothetical account is determined by reference to hypothetical allocations and interest adjustments that are analogous to actual allocations of contributions and earnings to an employee's account under a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of the stated account balance. Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks and rewards on plan assets are borne solely by the employer.