How do cash-balance plans differ from 401(k) plans?
Because they’re portable, cash-balance plans have often been compared with 401(k) plans. But there are some key differences between the two types of plans, notes William Arnone of Ernst & Young’s employee financial services practice. In a cash-balance plan, your employer is responsible for investing the money. The performance of the plan’s investments won’t affect your benefits. In a 401(k) plan, you’re responsible for investing your savings. If the mutual funds in your plan lose money, you’ll have less money for retirement. Also, cash-balance plans, like traditional pension plans, are federally insured against loss by the Pension Benefit Guaranty Corp. 401(k) plans aren’t insured by the PBGC. Q: What happens to older workers when a company converts to a cash-balance plan? A: Under a traditional pension, tenured workers increase their benefits at a much faster rate during their last years on the job. When a company converts a traditional pension to a cash-balance plan, these workers’ b
