FASB Sets New Rules for Cash-Balance Benefits
As reported in the Wall Street Journal, the definition says, "A cash-balance pension plan is a defined-benefit pension plan that defines the promised employee benefit by reference to a notional account balance. An employees' notional account balance is increased with periodic notional principal credits and notional fixed or variable interest or investment credits, and may be increased for other notional ad hoc credits."
No money is actually kept in "notional" accounts, but it is how companies must keep track of workers’ benefits.
FASB is formally reviewing rules governing the way companies measure cash-balance benefits, which can take many forms. Employers often combine elements of traditional pensions with 401(k)s, the Journal reported.
FASB had earlier considered requiring companies to value their cash-balance plans using government bonds, rather than corporate bonds used by other pensions. That proposal sparked opposition from employers and actuaries, who contended that the change would expand benefit obligations and therefore hurt corporate earnings.
Cash-balance plans are fairly popular with employers, but many believe the pensions don't pay older workers their fair share of benefits. In fact, a court ruling in July against IBM stated that the company’s cash-benefit pension discriminated against older workers. Also, the IRS stopped approving new cash-balance plans in 1999.