As traditional pension plans have largely disappeared over the years, many Baby Boomers heading into retirement today will by relying on cash balance pension plans instead. Understanding how to make the most of this employer benefit becomes increasingly important as one nears retirement.
Cash balance pension plans became popular in the late 1980s and early 1990s, especially with companies such as IBM, Xerox and AT&T, which at the time had large liabilities in their traditional defined benefit pensions. Cash balance pension plans emerged as a hybrid between traditional defined benefit plans (aka, a pension) and defined contribution plans (such as a 401(k) plan), offering employees a portable retirement benefit. The plans gained popularity among employers seeking to manage their costs and risks, while providing competitive retirement benefits.
