Hybrid Pension Plans on the Rebound

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The cash balance plan works very well with companies experiencing steady cash flow. This can be a differentiator when looking to attract and retain talented employees. Given the recent volatility many employees are seeking stability. The cash balance plan can provide this stability.

Hybrid plans have become more popular because they offer employees the security of an old-fashioned DB plan and the portability of a 401(k).”The trend over the past 20-plus years, particularly the last 10 years, was for sponsors to move away from traditional defined-benefit plans because of the volatility of cost and the volatility of the effect on their financial balance sheet,” Young says.

With the significant market declines over the past decade, many employers have switched primarily to 401(k)s. But now that the hybrid regulations have been clarified, employers may give pension plans a second look — in the new, improved form of the < cash-balance plan.

The portability of the hybrid plan is especially popular with a mobile, younger work force.

“Over the past decade, there has been more movement job-to-job and the idea of portability is important. An account plan allows you to move money,” says Glickstein.

“[The hybrid account] is portable,” he says. “[Younger workers] can take it with them. … It’s really appealing to employees that change jobs often. … A lot of traditional plans don’t allow you to take a lump sum

The cash balance plan works well when converting a current defined benefit plan. There are other attractive uses for the cash balance plan. Professional services firms, closely held family owned businesses among others can work very well combined with a 401(k)/profit sharing plan.

Please comment or call discuss how the cash balance plan might work in your organization.

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