The Portfolio Cash Balance Plan
The Portfolio Cash Balance Plan
Robert Newman, Partner
Covington & Burling
Key Features
- Employees are automatically enrolled
- Benefits are funded solely by the employer—no employee contributions are required
- The benefit is expressed as an account balance
- An employee’s balance is credited each year of employment with a “pay credit,” which is typically a percentage of the employee’s current pay
- The balance is adjusted each year until the benefit begins to be paid by an “investment credit,” which is based on the return on an individually-tailored retirement investment portfolio
- The plan provides automatic investment guarantees; at a minimum, principal is guaranteed against loss, while the employer is free to provide a higher, positive cumulative rate of return if it wishes
- The plan offers annuities for both employees and their surviving spouses
- The plan is also permitted to subsidize benefits that are paid upon death, disability, or pre-mature job loss (such as upon a plant closing)
Advantages to Employees
- Greater investment protection than a 401(k) plan due to minimum guaranteed return
- Benefits are employer funded
- Employee automatically enrolled
- Lifetime income options paid directly from the plan
- Professional investment management; no need to manage own retirement savings
- Shares investment risk, enjoying upside with guaranteed minimum return
Advantages to Employers
- Employer contributions more efficiently fund benefits for employees because funds are professionally invested
- Minimize funding volatility because assets can be invested to mirror individual accounts
- Employees feel more secure about retirement because minimum guaranteed return and availability of lifetime income options
- Employer contributions spread evenly among employees
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Did You Know?
A financial transaction in which a company gives a retiree a lump-sum cash payment in return for some or all of the retiree’s monthly pension payments for a period of time. Pension advances can carry high interest rates and threaten the economic security of the retirees who receive them. Read our fact sheet to learn more.