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Author: Bobbcat Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75776  
Subject: Re: Cash Balance Plans Date: 1/5/2000 8:34 PM
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I apologize in advance for the rambling that's about to happen

However, if he leaves the company he takes it with him (into an IRA or other company plan) or upon his death it will be left to his famiy.The the old plan he would collect as an annuity until his death and then it would revert back to the company.

You seem to have picked up on the advantage of a cash balance plan over the traditional defined benefit pension plan.

My question is: Does anyone know a formula of how to calculate the difference he would have received under the old plan?

Each defined benefit plan has it's own formula based on years of service and pay. You would have to know the formula and do some present value calculations

And does anyone really know anything about the Cash Balance Plan?

It is still a defined benefit plan. That means the company pays insurance premiums to the PBGC. Which means that if the company goes belly up, the government takes over paying all retirement benefits which have been earned by the employees.

It would be more benefical if the plan allowed the employees to use this money to invest as they saw fit instead of taking the average 6% from the 30 year bond.

That would change it to a defined contribution plan. In a defined benefit plan, you are guaranteed a future benefit. In a defined contribution plan, the employees take the risk of gains/losses in the account.
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The dollars in the plan are pure company dollars. They fund the plan to cover anticipated future costs (payouts and administrative expenses) taking into consideration anticipated future investment gains. The actual dollars are usually invested in both stocks and bonds. The company gets any benefit of any unanticipated gains by having to pay in less dollars the next year, but they also take the hit if there are market losses.

The company has the right to terminate the plan. If that occurs the present value of benefits earned are paid out to the employees. When a defined benefit plan terminates any excess dollars in the plan revert to the company, not the employees.

*Cat
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