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I work for a large corporation that has a cash balance plan that will now be converted to one based on, "service based contributions". Does anyone know how these, "service based contributions", work? Googling hasn't been to much help with this one.

Thanks y'all.

- weitzhuis.
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Probably, your employer will make contributions based upon your years of service and maybe some other factors such as age or wages. But, the details will have to come from your employer. There would be no "standard" formula.

Bob
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A cash balance plan (CBP) is a defined benefit plan that is funded a bit differently than a regular DBP that guarantees a future benefit. Instead of funding the plan based on an actuarial present value of your future benefit, the CBP makes an annual contribution that will generally be based on either your salary, your years of service or your age, or some combination. Once made, the CBP will then 'guarantee' an annual rate of return.

The disadvantage of this for older workers is that the annual contribution amount is usually, but not always, less than what the annual contribution would have been made with a traditional DBP...but it typically is a better annual contribution for younger workers....although this depends on the funding formula.

The only way to figure this out is to do a time-value-of-money calculation on what is being contributed to your plan, compared to the amount you require. Some will say that you need to have 10% of your salary contributed to your CBP each year, but this is at best a ball-park guesstimate that could be well off the mark.

BruceM
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