By Albert R. Trezza, ASA, MAAA
Assistant Director of Research and Analysis

Cash balance plans have long been a popular alternative to traditional defined benefit plans for cost-conscious sponsors. In the 1990's, there was a bit of a cash balance craze among issuers - the most prominent of which being IBM - until participant lawsuits and unfavorable court decisions effectively halted the trend.

Now, sweeping pension reform and recent court decisions have enabled the rebirth of the cash balance plan. The recently passed Pension Protection Act of 2006 gives prospective clarity to the cash balance rules (for both design and discrimination purposes). In addition, a recent ruling by the 7th Circuit Court of Appeals found IBM's cash balance formula to be nondiscriminatory - a huge win for cash balance plan sponsors, and an encouraging sign for those considering cash balance plans.

In this report - the first of a two-part series - Al Trezza outlines the basics of cash balance plans, and how both sponsors and participants fare under both. The second part will examine cash balance investment strategies

For more information and a hard copy, please contact Peter Austin, Executive Director, Mellon Asset Management, at 412 234-4474.

The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular BNY Mellon Asset Management product.