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Defined benefits plans and cash balance plans are both pension plans. However, they are significantly different...

Defined benefits plans and cash balance plans are both pension plans. However, they are significantly different plans. Which of the following statements is true?

a. A cash balance pension plan benefits younger and older employees equally.

b. Both plans have hypothetical accounts for each plan participant.

c. Both plan use the same vesting schedules whether the plan is top heavy or not.

d. Both plans can provide for lump-sum benefits upon termination and/or full retirement age.

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Answer #1

Ans is d. Both plans can provide for lump-sum benefits upon termination and/or full retirement age.

explanation: defined benefit plan usually expresses benefit in form of monthly income but a lump sum can also be provided same way cash balance plan pays lump sum either retirement or termination.

Statement A is False, since establishment of cash balance plan is more beneficial for younger employees, since formula is based on year of service and pay.

Statement B is false, since defined benefit plan promises a defined benefit to the participant after retirement and no contribution is required into the plan if plan earning is sufficient for funding.

Statement c is false, since defined benefit plan consider the age factor but cash balance plan not.

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