Actuarial valuations are essential for determining the current financial condition and contribution requirements for defined benefit plans.
A Defined Benefit Plan is a retirement program that provides a specific benefit at retirement. This benefit, called the “normal retirement benefit”, is a stated amount payable per month or per year for a set period of time – either life, term certain or as a joint and survivor benefit. The amount payable is usually computed as a percentage of compensation and years of service with the employer. Participants earn their benefit at retirement over the course of their employment, expressed as the “accrued benefit”. If participants terminate employment before retirement, they either earn a deferred benefit payable at the plan’s normal retirement age, or more commonly, receive the lump sum equivalent of the benefit earned to date. As there is not an account balance tied to this benefit, the risk of the investments under the plan is on the employer – not the employee. Generally, all the contributions to a defined benefit plan are paid by the employer, though there are plans under which employee contributions are required to be made.
These plans generally require actuarial certification by an enrolled actuary and may be covered by the Pension Benefit Guaranty Corporation. With having the benefit of an in-house Actuary, let us help you to design and administer this program to best meet your needs.
A cash balance plan is a hybrid plan that maintains a hypothetical employee account balance much like a defined contribution plan but is computed for funding purposes like a defined benefit plan. The hypothetical employee accounts receive an employer contribution based upon an allocation formula, usually a percentage of current compensation. These defined contribution-type account balances grow with an annual “contribution” and interest credits. Employees usually understand what they are entitled to under the plan. It provides age-neutral benefits to employees and allows age-neutral benefits to owners of different ages.
There are several methods of crediting employer contributions to cash balance plans, including a fixed percentage of earnings and percentages that vary by age, service, or earnings. Let us assist you in finding out if this plan best meets you needs.