I would not really think of a cash balance plan as an annuity. It really is a "balance of cash" provided by your employer.
The plans typically work like this. During the year your account gets 2 credits.
1 - Benefit credit: equal to some percentage typically based on (age and/or service) x (your salary)
2 - Interest credit: equal to some stated rate (30year treasury is common) x your balance at the beg of year + benefit credits within the year
So your "cash balance" goes up every single year.
the keys are this - it is very different from 401k in the sense that the employer takes all the investment risk. If the underlying assets over or under perform is not relevant to your benefit amount. You receive the interest crediting rate. Though a poor asset performance could lead to the plan underfunding....and possibly the employer bankruptcy and the PBGC stepping in.
As a cash balance plan is a Defined Benefit as opposed to a Defined Contribution plan. ERISA requires that participants be given the option to take an annuity, however the vast majority of these plans the people almost always take the cash lump sum at retirement.
About this article. I think the misleading thing is # of plans is not a good way to look at retirement savings in the USA. Huge corporations that employ thousands of people are freezing and closing Defined Benefit plans. They just don't want the costs and investment/longevity risk. I would bet that the majority of these new cash balance plans are very very small firms like lawyers / doctors offices who are using the higher annual benefit amounts to accumulate large pre-tax retiree savings through thier company and the plans are primarily benefiting a small number of well paid EE's. That being said, ERISA does have rules that help to ensure the lower level employees at these firms benefit as well.
I suspect the majority of the larger plans are from companies that use to give employees traditional pensions and have replaced that pension with a cash balance for employees on or after a certain date of hire. The benefits are typically smaller and the investment/longevity risk is less than traditional plans.
I know my comments are coming off as a bit "glass half empty", so I'll just say for the record I am a huge fan of these plans. For those 11 million employees, these plans are a great benefit to employment with that company, and should be considered when evaluating your total compensation.
