Cash Balance Plans vs. Traditional Pensions: Which is Right for You?

The cash-balance plan is a type of pension plan that many companies have switched over to in recent years. Here are a few things to consider about this type of plan and whether it is better than a traditional pension plan.

Cash-Balance Plan

With this type of pension plan, you are going to be able to see a specific dollar figure that represents how much money you have in your pension. With typical pension plans, they do not provide you with a total account balance but will instead show you a particular monthly payment that you can expect once you retire.

Which Plan Is Best?

With the cash-balance plan, you will have the option to take a lump sum of your state account balance if your employment is terminated or if you retire. Therefore, if you are the type of individual that would prefer getting a lump sum upon retirement, this plan may be better for you. However, if you like the security that comes with a regular monthly payment, a traditional pension plan might be better.

Converting to a Cash-Balance Plan

Whenever your employer converts over to a cash-balance plan from a traditional pension, you will not lose any of the benefits that you have accumulated. They will simply be reported differently to you.