Cash Balance Pension Plan
Cash balance pension plans are becoming more and more popular with employers. A combination of a 401(k) retirement account and a pension plan that will give you a monthly income stream, an employer puts a percentage of your salary into the plan. It's a "defined benefit" plan, as you will be guaranteed a certain amount when you retire.
Joe Workstoohard has an account balance of $100,000 when he reaches age 65. If he decides to retire at that time, he would have the right to an annuity based on that account balance. His annuity might be approximately $8500 per year for life. With some cash balance plans, however, he and his spouse could instead choose to take a lump sum benefit equal to the $100,000 account balance.
The contribution limits are also much higher in cash balance plans compared to a regular 401(k) plan, if you want to add to it from your own pocket. If you are 60 or older, you can sock away $200,000 per year in pretax contributions, while a 401(k) plan only allows $57,500 per year for those 50 or older. If Joe's got $200,000 to put away every year, we have one question: is his company hiring?
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Finance: What is a Pension?31 Views
finance a la shmoop. what is a pension? well it rhymes with tension, and likely
for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]
another state employees pension that's backed up by a state that's going
bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people
well a pension is another term for a retirement fund. but what's special about
a pension is that the employer essentially forces you to put away money
for your retirement and then they invested for you.
how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]
employed ditch-digger might get a contribution of say 10 grand a year into
her pension, and that's each year 10 grand of forced savings for as long as
she you know digs ditches for the state. and in some states where the unions are
strong in the governing financial knowledge is weak the government
guarantees a minimum financial return on the pension investment made on behalf of
the employees. that is in California for example the state guarantees a 10% per
year return on their invested pension savings. if the invested return like [equation]
investing it in Wall Street and stocks and bonds and private equity funds and
all that stuff well if that invested return is less than that number less
than that 10%, then the state rights to the pinch and a check to cover the
incremental difference. yeah it's a huge Delta and it's well pretty much why you
a Californian Illinois you're going bankrupt remember. Jesus Saves
but Moses invests. [ Moses, holding stone tablets glares and demands interest]
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