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Cash Balance Plans: What You Need To Know About Them

by AOG Wealth Management
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Many companies offer cash balance plans to employees as part of their benefits package. They are a type of pension plan where the employer credits a set percentage of a qualified employee’s annual compensation plus interest charges. AOG Wealth Management, an experienced provider of wealth management solutions in the area, discusses this further.

A Defined-Benefit Plan

A cash balance plan is considered a defined-benefit plan. It means the funding limits and requirements, as well as investment risks, are based on defined-benefit requirements. The qualified employee may still receive their final benefits upon retirement or termination despite changes in the portfolio. The employer must carry all ownership of profits and losses in that portfolio.
 
Despite being a defined-benefit plan, a cash balance plan is usually maintained based on an individual account similar to a defined-contribution plan. Here, changes in the employee’s portfolio won’t affect the yearly contribution.
 
Resembling Traditional Pension Plans

Investment management advisors agree that the features of a cash balance plan bear semblance to a traditional pension plan. In both plans, investments are managed professionally. The similarities, however, end there.
 
Suppose you are the employee and you decide to leave your job. In a cash balance plan, you get to take the money with you. The funds would then be rolled into a personal IRA, giving you the freedom to make your investment. This won’t be possible in a traditional pension, where you only get a payout upon reaching the age of retirement.
 
A cash balance plan, however, shouldn’t be treated as the sole resource for your preparation for retirement. At AOG Wealth Management, we recommend securing additional income either through an IRA or a 401(K). You may choose to take the lump sum as a payout option for your cash balance plan. Still, such decisions are best made with the help of our experts in providing asset management services.
 
Our company provides clients personalized solutions and completes thorough due diligence on all potential investments. To learn more about cash balance plans, give us a call at (866) 993-0203 or fill out our contact form for a complimentary consultation. We serve Great Falls, VA and nearby areas.

Category: Wealth Management