What Is a Cash Balance Pension Plan?

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Most people are familiar with an individual retirement account (IRA) or a 401(k) for retirement. However, another option is growing in popularity. Cash balance plans are being used by many small businesses to provide retirement benefits for both the owners and employees.

A cash balance plan can accelerate the buildup of retirement assets beyond other plans. But what is a cash balance plan, and how does it work?

Cash Balance Pension Plan and How It Works

There are two types of employer-sponsored retirement plans. One is the defined benefit plan (DB), which is a traditional pension plan that the employer makes contributions into. It gives the employee a guaranteed income for life. These have become rare.