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Answer: Cash account pension plans are a type of defined benefit plan. Like all defined benefit plans, retirement benefits are computed by a formula, employers are required to contribute sufficient funds to pay future benefits, and those future benefits are guaranteed by the Federal government up to certain limits. Cash account plans define their benefits as a lump sum, a sum which grows throughout the employee's career. When an employee leaves the employer or retires, the plan's benefits can be paid in a lump sum or converted to an annuity.

While the percentage of workers covered by all types of defined benefit plans has been declining in recent years, those workers that do have such coverage are more likely to be covered by a cash account plan than ever before. Based on BLS surveys of employee benefits, the percentage of full-time workers in private industry who are covered by a defined benefit plan has dropped from 32 percent in 1996-97 to 22 percent in 2000. But of those covered by a defined benefit plan, the incidence of cash account plans has risen from 4 percent in 1996-97 to 23 percent in 2000. Data from the 2000 benefits survey may be found at http://www.bls.gov/ncs/ebs/sp/ebrp0001.pdf.

Last Modified Date: November 19, 2002