Cash Balance Plans: Survey and Trends

In this report we review the use of cash balance features in defined benefit plans sponsored by U.S. employers with a focus on the evolution of interest crediting bases utilized by those plans. Our emphasis on interest crediting is prompted by current and prospective cash balance plan sponsors seeking interest crediting bases that are more responsive to changing market conditions than the interest crediting bases commonly used. This objective is consistent with the ongoing need of employers to reduce the financial risks associated with sponsoring retirement plans while providing sustainable and secure benefits with better participant outcomes.

Some of the key findings found in the report are:

• Cash Balance plans are prevalent among employers across many industries

• Over 90% of cash balance plans (with no legacy traditional annuity benefits) continue to provide ongoing benefit accruals.

• Among the Utility industry, 90% of cash balance plans provide ongoing accruals

• Cash balance plans are less likely to be frozen, compared to traditional annuity plans

• Market interest crediting rates (ICR) are gaining ground

• Plans that credit market ICR enjoy the most stable pattern of funding from year-to-year

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