People are asking...
How prevalent are cash account (cash balance) pension
plans?
Answer: Cash account pension plans are a type of defined benefit plan. Like all defined benefit plans, retirement benefits are computed by a formula, employers
are required to contribute sufficient funds to pay future benefits, and those future benefits are guaranteed by the Federal government up to certain limits.
Cash account plans define their benefits as a lump sum, a sum which grows throughout the employee's career. When an employee leaves the employer or retires,
the plan's benefits can be paid in a lump sum or converted to an annuity.
The percentage of workers covered by all types of defined benefit plans has been declining in recent years and those workers that do have such coverage are
more likely to be covered by a cash account plan than ever before. Based on BLS surveys of employee benefits, the percentage of full-time workers in private
industry who are covered by a defined benefit plan has dropped from 32 percent in 1996-97 to 21 percent in 2008. But of those covered by a defined benefit plan,
the incidence of cash account plans has risen from 4 percent in 1996-97 to 23 percent in 2005. Data from the latest benefits survey may be found at
www.bls.gov/ncs/#publications.
Last Modified Date: October 30, 2008
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