Opinion ID: 3030887
Heading Depth: 4
Heading Rank: 1

Heading: e., the employer, bears the investment risks.

Text: The pension plan at issue in this case is a cash balance plan. A cash balance plan, by law, is a form of defined benefit plan and must comply with the statutory regulations applicable to defined benefit plans. See, e.g., Esden v. Bank of Boston, 229 F.3d 154, 158 (2d Cir. 2000). However, in actuality, a cash balance plan is a hybrid between a defined contribution plan and a defined benefit plan as it contains attributes of both. See, e.g., id. at 158-59. A cash balance plan is classified as a defined benefit plan because cash balance plans, like traditional defined benefit plans such as the plan PNC maintained before January 1, 1999, “are required to offer payment of an employee’s benefit in the form of a series of payments for life . . . .” Burstein v. Ret. Account Plan for Employees of Allegheny Health Educ. & Research Found., 334 F.3d 365, 370 n.6 (3d Cir. 2003) (quoting U.S. Dep’t of Labor, Employee Benefits Sec. Admin., “Frequently Asked Questions about Cash Balance Pension Plans,” at 2, available at http://www.dol.gov/ebsa/faqs/faq_consumer_ cashbalanceplans.html). Nevertheless, a cash balance plan differs from a traditional defined benefit plan in that “traditional defined benefit plans define an employee’s benefit as a series of monthly payments for life to begin at retirement, but cash balance plans define the benefit in terms of a stated account balance,” albeit a “hypothetical” account. Id. Thus, cash balance plans are like defined 3 Of course, in some cases the loss may be shifted to another party. See 29 U.S.C. § 1132(a). 7 contribution plans in that both define the employee’s benefit in terms of a stated balance. Cash balance plan accounts “are often referred to as hypothetical accounts because they do not reflect actual contributions to an account or actual gains and losses allocable to the account.” Id. Instead, the employer imputes value to the hypothetical account in the form of annual “credits.” Cooper v. IBM Pers. Pension Plan, 457 F.3d 636, 637 (7th Cir. 2006), cert. denied, U.S. , S.Ct. , 2007 WL 91579 (U.S. Jan. 16, 2007). As is the case here, there are typically two types of credits: (1) “pay credits” or “earnings credits,” which are hypothetical contributions an employer makes usually expressed as a percentage of wages or salary and may vary with employee tenure, and (2) “interest credits,” which are hypothetical earnings (either a fixed or variable rate linked to an index such as the 1-year Treasury bill rate) on the account balance. See Berger v. Xerox Corp. Ret. Income Guarantee Plan, 338 F.3d 755, 758 (7th Cir. 2003); Esden, 229 F.3d at 158. Employers design cash balance plans so that when a participant receives a pay or earnings credit for a year of service, he also receives the right to future interest credits projected out until normal retirement age. When a participant becomes entitled to receive benefits under a cash balance plan, his benefits are defined in terms of an account balance, which then may be converted actuarially into an annuity at the option of the participant. As is true in the case of traditional defined benefit plans, the employer funding the plan bears the investment risks associated with the plan. This risk could be considerable because, unlike in the case of defined contribution plans, cash balance plans accounts grow on the basis of a predetermined formula rather than on the basis of actual earnings.