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Retirement Planning

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Cash Balance Plan Definition

A cash-balance plan is a pension plan in which a worker's ultimate benefits are stated as a lump-sum cash amount instead of an annual payout. Employers guarantee their workers a set annual contribution and a set percentage of gain in their retirement accounts for every year they are employed. When employment ends, workers can take a cash payout on the balance and roll it over into a traditional individual retirement account, or they can take an annual annuity payout, based on that final account value. If the actual investments do better than the guaranteed gain, the employer benefits. If they do worse, the employer eats the loss.

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