Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

A cash balance plan is defined by a specific dollar amount being promised to participants at retirement, which distinguishes it from defined contribution plans that rely on investment performance. In a cash balance plan, the employer credits a participant's account with a set percentage of their pay each year, along with interest credits. At retirement, participants receive the accumulated balance, which is a predetermined amount rather than being directly tied to market performance, as seen in other types of retirement plans.

This structure provides predictability and security for employees who can anticipate a defined benefit upon retirement. Consequently, this approach combines features of both defined benefit and defined contribution plans, making it particularly appealing for companies seeking to offer stable retirement benefits while managing costs and risks associated with investment performance. This clarity in benefit delivery contributes to the attractiveness of cash balance plans to both employers and employees in their retirement planning strategies.