What characterizes a cash balance pension plan?

A cash balance pension plan is characterized by the employer contributing a set percentage of an employee’s salary into a designated account that is credited with interest, typically at a predetermined rate. This structure allows employees to see their benefits grow over time as both their contributions and the company's contributions accumulate. Unlike traditional defined benefit plans, which provide specific payout amounts based on a formula, cash balance plans offer employees a more straightforward view of their benefits, as they can clearly see the balance in their accounts.

This design also simplifies the retirement planning process for employees, since they can rely on a predictable accumulation of funds. The contributions from the employer create a sense of security and the interest credited enhances the total benefit available at retirement. Such plans do not only focus on high-level executives; they can be used for a broader employee base, making them accessible to more employees while not being dependent entirely on market fluctuations like other retirement savings plans.