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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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