A hybrid retirement plan that incorporates features of both defined benefit plans and defined contribution plans. While cash balance plans are defined benefit plans, they mimic the structural features of defined contribution plans since each participant's benefit is based on a hypothetical account balance which includes:

No money is actually deposited into the cash balance accounts. Instead, employers make annual contributions to a pension trust fund on behalf of all participants. Plan trustees have investment control over the assets in the trust and the hypothetical accounts are credited with interest credits, not with the actual investment gains or losses experienced by the trust. If the trust assets grow at a rate greater than the promised interest credits, the plan sponsor can expect over time to make contributions less than the promised pay credits.

For more information on cash balance plans, see Practice Note, Cash Balance Plans.