Hi
I am trying to develop a deeper understanding of cash balance schemes as I haven't encountered such schemes at work and there isn't much detail in the core reading or acted notes.
From what I've read online, it usually involves hypothetical member accounts, and each year:
1. A defined % of salary is credited as contributions
2. The contributions grow by a defined interest rate % as defined in the rules
The member receives a cash lump sum equal to the hypothetical member account at retirement or earlier exit
So essentially when a funding valuation is done, the liability is the sum of the hypothetical member accounts (which would have grown by the defined interest rate instead of the actual return). Thus there could be a surplus/deficit dependent on the actual asset value, which the employer could use to adjust future contribution rates.
Is the above basically it? And would there be variations where a lump sum amount at retirement is defined say in monetary terms?
Last edited by a moderator: Aug 17, 2020