Cash for Pension

Guys, Pension plans are divided into two separate categories: plans with defined benefits, and plans with defined contributions. A defined benefit pension plan ensures a specified benefit for any retiring employee that is eligible, while the defined contribution pension plan relies upon an employer's specified contributions into their employee's pension plan account. Cash for pension plans represent a type of defined benefit pension plan that acts more as a defined contribution plan. There seems to be a lot of confusion as to how such plans actually work. Generally speaking, cash balance pension plans resemble defined contribution plans by having an employer credit their employee's retirement account annually. As the employee reaches age 65, they are entitled to receive the cash balance plan benefits (making cash balance pension plans a defined benefits plan) in the form of a cash balance that has been deposited to their pension account. At the time of retirement, individuals can either accept yearly payouts for the rest of their life in the form of an annuity (typically about 10% of the pension account balance per year), or alternately to choose a lump sum benefit for the full pension account balance. Many plans include the option for individuals to accept an adjusted lump sum upon leaving work before the age of 65.The main difference between these retirement vehicles and traditional pension plans concerns the distinctions made in the definition of benefits. While regular pension account benefits will be represented as specific payments into an individual's pension account in perpetuity (beginning at the age of retirement), cash balance plans simply define the benefit as an account balance (which is not reflective of actual contributions, and as such is 'hypothetical' in nature until the time of retirement). Thanks.