A cash balance plan is also described as a hybrid defined benefit plan. The cash balance plan provides a “hypothetical account balance” for the retirement benefit. This is much like a defined contribution where the participant can view their account balance. A defined benefit plan does not provide an account value to the participants. The plan assets does not affect the participants retirement benefit as it does in a defined contribution plan, but it does allow the participants to track their accrued retirement benefit.
Employers and participants find it much easier to understand a benefit stated as a current accrued balance rather than the current value of an accrued future benefit. Therefore, many employers are converting their existing traditional defined benefit plans to cash balance defined benefit plans.