Employer-sponsored retirement programs tend to be nuanced. That said, there are generally two types of plans: defined benefit and defined contribution. While cash balance plans officially fall into the former camp, they operate more like a hybrid of the two. What Are Cash Balance Plans? In the simplest of terms, a cash balance plan is a defined benefit plan that also includes a contribution element. Under this plan, employees receive a guaranteed amount when they retire — which makes it a defined benefit. Moreover, employers make fixed contributions to employee accounts each year according to a predetermined formula — drawing similarities to a contribution plan. However, unlike other plans, these contributions and account balances are “hypothetical” until a participating employee leaves the company, at which point the employee can receive a lump sum or begin receiving annuity payments. How Do Cash Balance Plans Work? Under a cash balance plan, eligible employees have hypothetical account balances that grow annually through pay credits and interest credits. Pay Credits: Employer contributions, which are typically a percentage of a salary. Interest Credits: Guaranteed interest on the account balance, which