Public Pension Cash Balance Plans

More than $1 trillion in unfunded pension promises made to current and retired government employees are placing a strain on state and local budgets, prompting policymakers across the country to take a closer look at alternative ways to design a retirement plan.

A number of states and municipalities have made the move to a pension design called a cash balance plan.

Well-designed cash balance plans, like traditional defined benefit or defined contribution plans, can help government employers meet their recruitment and retention goals.

They offer the following key elements needed to help employees achieve a secure retirement:

• Fully funded retirement benefits;
• Access to professionally managed, low-fee, pooled investments with appropriate asset allocations; and
• Access to lifetime income options, or annuities.

All public employees deserve a secure retirement. States need a fair set of solutions that will make their retirement system financially sustainable in the long run.

This brief will provide an overview of cash balance plan designs and discuss related policy issues. Other types of retirement plans will be discussed in subsequent briefs.