How should contributions be invested?
Very conservatively, to match the cash balance interest crediting rate. Under current law, that’s usually a Treasury-based rate. If annual contributions equal pay credits (as most cash balance plan sponsors prefer), investing to match the interest credits keeps the plan from becoming underfunded. If the plan becomes underfunded, a lot of bad stuff happens: benefit restrictions, required quarterly contributions, participant notices, etc. Partners who leave get 100 cents on the dollar, and that makes the underfunding worse for remaining partners. If you want to take investment risk, do it elsewhere — like in the 401(k) or profit sharing plan. It’s just not worth it in a cash balance plan.
