Traditional vs. Cash Balance Pensions: What's the Problem?
By: Source: AARP Bulletin Today Date Posted: 2003-06-30 14:17:42
July/August 2002
Critics say switching to cash balance plans is unfair to older workers. In a traditional pension plan, benefits are based on a worker's tenure with one employer and average salary in late career, when earnings have peaked. In a cash balance plan, workers build up benefits throughout their careers, and the balance is portable when changing jobs.
When companies switch plans, longtime workers miss out on the benefit spike they would have received under a traditional plan, and they are too close to retirement to make up the difference in a cash balance plan.
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