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

The characteristic that contributions accumulate at a specified rate of return is a key feature of cash balance plans. In these plans, the employer typically contributes a certain amount to each employee's hypothetical account each year, and those contributions are credited with an interest rate that is specified in the plan document. This interest rate may be a fixed rate or based on a market index, but it is predetermined, allowing employees to see how their account balances grow over time.

This structure distinguishes cash balance plans from traditional defined benefit plans, which promise a specific retirement benefit based on a formula, and from defined contribution plans, where the investment returns can vary based on market performance. The cash balance plan provides employees with clarity regarding their retirement savings because they can track their balance and anticipate the amount they may receive upon retirement based on the contributions made and the interest credited to those contributions.

Understanding the mechanics of this accumulation is essential for recognizing how cash balance plans operate and benefits employees receive during their working years and upon retirement.