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What is a cash-balance plan?

A cash-balance plan is a defined benefit plan that is a whole lot like a traditional pension, but with a few elements that closely resemble a 401(k).

Here's what's the same: You don't invest any of your own money in the plan, nor do you have any responsibility for the investment choices.

Here's what's different: Instead of your benefit in retirement being based on a formula that takes into account how long you were on the job and your average salary during your last few years of employment, the cash-balance plan credits your account with a set percentage of your salary each year, typically 5%, plus a set interest rate that is applied to your balance.

Each year, you get a statement that shows the hypothetical value of your account, as well as what sort of monthly income payout (or lump sum) that will generate when you retire at 65.

Another key difference: If you leave the company before retirement age, you may take the contents of your cash-balance plan as a lump sum and roll it into an IRA. A traditional pension isn't portable.

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