Author Topic: Cash Balance Plan Gotchas  (Read 629 times)

JetBlast

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Cash Balance Plan Gotchas
« on: October 16, 2018, 11:56:00 AM »
This might be a better question for bogleheads or white coat investor, but I thought Iíd give it a shot here.

One of the ideas thatís been advanced recently where I work is adding a cash balance plan to our retirement. I understand the basic mechanics of the type of plan and the major benefits and drawbacks, especially having no say over the investments. But since Iím sure some on here have experience with these plans, what are the surprising drawbacks that most people donít realize until they get bit by them? 

The consultants that would help set up and manage such a plan have a multi-million dollar interest in us approving this plan. What are they not telling my union representatives?

jacoavluha

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Re: Cash Balance Plan Gotchas
« Reply #1 on: October 16, 2018, 05:05:14 PM »
What are the fees? What rate of return is written into the plan? At your age how much are you getting in the plan each year?

JetBlast

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Re: Cash Balance Plan Gotchas
« Reply #2 on: October 16, 2018, 08:59:24 PM »
Right now itís just an idea being discussed. 5% has been mentioned as a safe rate of return, though higher could be possible. Company contributions would still need to be negotiated so thatís an unknown at this point.  At my age itís likely I could do better investing it after tax in a brokerage account than getting 5% in a tax-deferred plan.


jacoavluha

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Re: Cash Balance Plan Gotchas
« Reply #3 on: October 17, 2018, 08:31:56 AM »
I have no insight into a large cash balance plan from your perspective. 5% return is more than Iíve seen typically put in these defined benefit plans. Usually more like 3-4%. Because sponsor has to make up any shortage if returns donít meet target