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Pension Funds

65% of cash balance plans are actively accruing benefits, consultant October Three finds

Nearly two-thirds (65%) of U.S. private-sector single-employer defined benefit plans with a cash balance feature are actively accruing benefits, while 35% of the plans are frozen, according to a report by October Three Consulting.

Moreover, more than 90% of "pure" cash balance plans are actively accruing benefits; whereas 57% of "mixed" plans, which provide both cash balance and traditional pension benefits, or are cash balance benefits that have been converted from traditional pension benefits, continue to provide ongoing cash balance accruals.

October Three analyzed Form 5500s for 1,069 single-employer plans with cash balance features, each of which covers at least 100 total participants (including participants who have no cash balance benefits) and the Pension Benefit Guaranty Corp.'s historical premium database.

Overall, of the roughly 45,000 single-employer defined benefit plans sponsored by U.S. private-sector employers, more than 15,000 have cash balance features, according to October Three's report. The vast majority of plans with cash balance features have fewer than 100 participants, the report said.

The report notes that employers first began to adopt cash balance provisions in the mid-1980s, but they didn't take off until the mid-1990s. Then, the IRS suspended processing determination letter requests for converted plans and things cooled off. "Adoption of cash balance designs increased in the early 2000s and then again beginning in 2007, when the cash balance design was formally blessed and key legal issues resolved with the passage of the Pension Protection Act of 2006," the report said.

October Three found that, on average, cash balance plans are better funded than the broader pension universe, with a median funding ratio of 99%, compared to 89% among all single-employer defined benefit plans with at least 100 participants.