Idea of cash balance plans gains traction as states consider fixes to retirement systems

Stateline Midwest ~ June 2012

Since 2003, newly hired workers for the state of Nebraska have been enrolled in a “hybrid” retirement plan — part defined contribution, part defined benefit. It is known as a cash balance plan, and a decade later, some states in the Midwest were close to following in Nebraska’s footsteps.

 

Under legislation passed this year in Kansas (HB 2333), a cash balance plan will be used for new hires beginning in 2015. Upon their retirement, employees enrolled in the plan will be eligible to receive a lump-sum payment or annuity, with the amount in the final account balance based on employee contributions as well as the payment amount pledged by the employer. The employer also guarantees a certain return on investments; in Kansas, lawmakers settled on guaranteeing an annual return of 5.25 percent, the Lawrence Journal-World reports. In Nebraska, the guarantee is set at either 5 percent or a rate based on the yield of U.S. treasury notes, whichever is greater.

A cash balance plan is also part of pension legislation (SB 1673) in Illinois. According to The Springfield State Journal Register, the guaranteed rate of return was expected to range from 4 percent to 10 percent, depending on the value of U.S. treasuries. The bill had not passed as of May.

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