Cash Balance Pension Plan
In corporate America, the majority of workers have been introduced to pension plans. A pension plan can be defined as a payment, not wages, made regularly to a person (or family) who has fulfilled certain conditions of service and reached a certain age.
A new retirement plan is becoming popular throughout US companies. The plan may be beneficial to new employees, but the plan may not help the old employees.A few years ago, the traditional (defined benefit plan) was popular with many US companies. The plan rewards employees based on the following factors: salary, age, and years of service (MSN.com). The defined benefit plan is based on seniority, meaning that employees have the larger pension. However, if one were to leave before retirement, the money would stay with the company’s pension plan account. An example of this plan would be as follows: if a 45 year old employee who has worked at a company for 10 years will get more money credited to his pension account in 1999 than a 45 year old employee who gets the same wages, but has only 5 years of service. (MSN.com)
The cash balance pension plan is the new thing. Already more than 20% of the nation’s fortune 500 companies offer this sort of plan (MSN.com). First of all, cash balance plans are cheaper and attractive to young workers. On the other hand, old workers are not pleased with the idea. A cash balance pension plan considers only your salary. Seniority in a company does not matter any longer. In a cash balance pension plan, for a 50-year-old employee and a 35-year-old employee starting work at Intel making $50,50 annually, the same amount would be contributed to their pension plans. For example, a 28-year-old worker making $34,000 a year would get about $8,000 more with a cash balance plan if he left after five or six years than if the employer used a defined-benefit program. (Moneycentral.msn.com)
In conclusion, just because employees are introduced to pension plans, does not mean that they are going to receive full benefit (MSN.com). The cash balance pension plan is a new plan that is being widely used across the United States. The cash balance pension plan is based on your salary, not your seniority with the company. Therefore, the plan would not be beneficial to older, with 15 years in a company, and $42,000 annually versus a new employee with only 5 years but, making $55,000 annually (MSN.com).