Cash Balance Plan Administration in the 21st Century

It’s Beginning to Look a Lot Like a Defined Contribution Plan

As many companies are coming to appreciate the value of the Market Return cash balance plan design, managing economic risk and contribution volatility has become much more realistic. Today’s cash balance plans now work in harmony with 401(k)/Profit Sharing Plans to deliver significant risk reduction for sponsors, with predictable contributions and manageable costs. So why shouldn’t they look and feel just like a defined contribution plan to participants as well? The answer is they really should, and with the aid of some leading edge technology they most certainly can. That’s why we’ve developed the O3 Daily PlatformSM.

Cash balance plans, at their core, are a type of defined benefit pension plan, so it’s easy to understand why they have historically been administered in much the same way as traditional defined benefit plans. Annual participant statements, with contribution and interest credits updated at year end, have typically been provided several months into the following plan year, and even if there is a participant web site, the information remains static until sometime next year when the process is repeated. This can lead to lack of appreciation and even frustration among employees where the bulk (and in many cases, all) of the plan’s account balances are concentrated.

Operationally, we believe today’s cash balance plans actually have much more in common with defined contribution plans than with defined benefit plans. Capitalizing on these common features can lead to a far more rewarding and engaging experience for everyone concerned. Updating participant accounts to reflect investment performance more frequently than once a year is the first critical step to reaching this goal. Manual updating on a semi-annual or quarterly basis is a good start, but can be labor intensive and therefore costly, so the process really needs to be automated.

Once the automation is in place, and assuming investments can be valued on a daily basis, why not update participant accounts daily as well? And, with so much relevant information available, why not display it on the 401(k) participant web site through a feed from the cash balance plan platform? This allows participants to think of retirement in a much more holistic way, with far less focus on what type of plan their account balances come from. It is even possible to look through the investment manager’s asset allocation in the cash balance plan (such plans are precluded by law from offering participant direction at this time) to the participant level and display this information along side or even merged with the asset allocations in the participant’s 401(k)/Profit Sharing plan accounts. This feature can provide valuable information for personal financial planning and asset allocation within participant directed accounts. Cash balance plan account projection tools are also available on the O3 Daily platformSM (the two sites can be directly linked through single-sign-on technology) so participants can model future growth potential of all their employer sponsored retirement programs.

If your cash balance plan is still being administered the “old fashioned way”, we encourage you to explore the possibility of moving to a more technologically advanced environment. Contact October Three for additional information.

October Three, LLC is a full service actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country. A primary focus of the consultants at October Three is the design and administration of comprehensive retirement benefits to employees that minimize the financial risks and volatility concerns employers face.

Through effective plan design strategies October Three believes successful financial outcomes are achievable for employers and employees alike. A critical element of those strategies is the ReDB® plan design. The ReDefined Benefit Plan® represents an entirely new, design-based approach to retirement and to the management of both the employer’s and the employee’s financial risk, focusing on maximizing financial efficiency and employee value.

For more information:

233 South Wacker Drive, Suite 8350
Chicago, IL 60606-7147
info@octoberthree.com
Phone: 312-878-2440
Fax: 866-945-9676
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