Cash Balance Plan Law and Legal Definition

Cash balance plan is a type of defined benefit plan. It also includes some elements that are similar to a defined contribution plan. In a cash balance plan, the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account.

The following is an example of a case law referring to cash balance plan:

A cash balance plan is a defined benefit plan. However, cash benefit plans are structured to function like a defined contribution plan. A cash balance plan is classified as a defined benefit plan because cash balance plans are required to offer payment of an employee's benefit in the form of a series of payments for life. Nevertheless, a cash balance plan differs from a traditional defined benefit plan in that traditional defined benefit plans define an employee's benefit as a series of monthly payments for life to begin at retirement, but cash balance plans define the benefit in terms of a stated account balance, albeit a "hypothetical" account. Thus, cash balance plans are like defined contribution plans in that both define the employee's benefit in terms of a stated balance. [Drutis v. Rand McNally & Co., 499 F.3d 608 (6th Cir. Ky. 2007)].