As far as retirement plans go, cash balance plans are definitely not as well known or discussed as traditional 401(k)s with regard to retirement planning.  Cash benefit plans are a form of defined benefit plan.  Participants are guaranteed a certain amount of money when they reach normal retirement age, and the participant gets to choose from one of three types of distributions: lump sum, single life annuity, or joint and survivor annuity.  Cash balance plans are also backed by the Pension Benefit Guaranty Corporation.  This means that if the participant’s employer goes under, the PBGC will pay the pension up to the legal limits.

As with traditional defined benefit plans, the employer bears all the investment risk.  The employer will invest the money in any manner they choose, however they will establish a guaranteed rate at which the employees money will grow by.  The nice thing about these plans is that their value never goes down, which is great if there is a volatile stock market.

Now, when it comes time to take the money out, you should discuss your options with your financial adviser to determine where you stand on your retirement savings.  Financial advisers will suggest that if you feel you may outlive your assets and don’t want to take on investment risk, you should consider single life annuity or joint and survivor annuity distributions.  The annuities provided by the employer do not have the expenses of annuities purchased on the open market.  Of course, you can still take a lump sum, especially if you already have many sources of fixed income to pay for your retirement expenses.  Before deciding which distribution method is best for you, you really should sit down and analyze your finances and discuss whether or not you have enough to last those 30 years of retirement.