Chapter 13 - Benefit Options

86. (p. 455) What is a cash-balance plan? 

Cash balance plans are defined benefit plans that look like a defined contribution plan.

Employees have a hypothetical account (like a 401[k]) into which is deposited what is typically a

percentage of annual compensation. The dollar amount grows both from contributions by the

employer and from some predetermined interest rate.

Difficulty: Medium

 

87. (p. 456) Explain vesting and portability. 

Vesting refers to the length of time an employee must work for an employer before he or she is

entitled to employer payments made into the pension plan. Portability refers to the issue of

transferring pension benefits of employees moving to new organizations.

Difficulty: Medium

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