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September 11, 2006

Cash balance pensions

Many companies are switching to a new type of pension plan called a cash balance pension. Economist Mike Walden explains what these funds are and what they mean for employees.

"It’s a fairly simple idea. It’s where you have a pension fund that is a certain percentage of your annual salary, and so that fund will grow with your salary over time, plus you will have interest added each year," explains Dr. Walden, a professor at N.C. State University.

"It’s also a portable pension fund, meaning that you can move it from job to job, so it’s not tied to any particular job. Then when you retire, what you receive in an annual pension is going to be based on how much money you built up in that cash balance fund.

"So it’s different than a traditional pension, where the company promises to pay you a certain amount for life," he adds. "Instead, the cash balance pension is going to be based on your salary and years of service because those two will determine how much money you will ultimately have."

Posted by deeshore at September 11, 2006 02:36 PM