The Portfolio Cash Balance Plan
The Portfolio Cash Balance Plan
Robert Newman, Partner
Covington & Burling
- 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 joint-and-survivor annuity is an annuity that pays a monthly benefit over the lives of the participant and his or her surviving spouse. This is the default form of benefit for married participants in most defined benefit pension plans. Because it lasts for the life of both the worker and the spouse, a joint-and-survivor annuity typically results in a lower monthly benefit payment than a single-life annuity.