Cash Balance Plans Offer Lump Sums
The announcement earlier this year by IBM rocked the planned benefits world when Big Blue changed their benefits fom a pension plan to a cash-balance plan.
Employees working at IBM shouldn't feel they are alone. In fact, more than 325 companies with names like AT&T and Xerox, also have converted to cash-balance plans.
Most everyone understands that the traditional pension plan thrives through employee and employer donations for the long-term. Cash-balance plans, on the other hand, offers savings to employees for each year they work, allowing them to take the money in a lump sum when they leave.
Employees who work for a company for a long period of time benefit more from the pension plan. However, with the workforce now employed with more companies throughout their lives, the pension plan is not likely to save them very much money. Conversely, in a cash-balance plan, employees make no contributions, but can take a lump-sum payment and roll it over into their own IRA.