What is a frontloaded interest credit cash balance plan?
A participant in a cash balance plan typically accrues his or her account balance through pay credits and interest credits. Pay credits are earned while the employee is an active participant, meaning he or she is employed by the plan sponsor. A plan is considered to have frontloaded interest credits if interest credits continue to accrue whether or not a participant is still an active participant. In other words, if a participant terminates employment, interest credits will continue until the participant eventually takes a distribution.
