THE PENTEGRA CASH BALANCE PLAN ADVANTAGE

What is a Cash Balance Plan?

A cash balance plan is a defined benefit plan with a hybrid structure that combines features of both defined
contribution and traditional defined benefit pension plans.

Like a traditional defined benefit plan, the employer in a cash balance plan determines benefit levels and is responsible
for required plan contributions to fund the benefits. Funds are pooled and managed as a single trust fund.

Similar to a defined contribution plan, cash balance benefits are communicated to employees in terms of an account
balance, rather than as a monthly income stream. Each participant has an account that grows annually based on
employer contributions and interest credits that are guaranteed rather than dependent upon plan investment perfor-
mance.

Annual contribution credits may be constant or may increase based on participant’s advancing age and/or years of
service. The contributions are credited with a rate of interest that is typically tied to an outside index, such as the one-
year U.S. Treasury Bill rate. A variety of investment vehicles may be used to achieve the annual interest crediting rate.

2 Enterprise Drive, Suite 408 Shelton, CT 06484-4694 800•872•3473 tel 203•925•0674 fax www.pentegra.com
How do Cash Balance Plans Work?
A cash balance plan is a defined benefit plan with a hybrid structure that combines features of both defined
contribution and traditional defined benefit pension plans.

On an annual basis, participants receive a statement illustrating their account balance, which equals the lump sum
value of their benefits under the plan. Statements include a beginning-of-year account balance, earnings for the year,
the employer contributions and an end-of-year balance. As in a defined contribution plan, cash balance benefits can
be distributed as a lump sum payout upon termination at any age. This gives the cash balance plan the advantage of
having completely portable benefits. And since they are defined benefit plans, the benefits promised by cash balance
plans are generally protected, within certain limitations, by federal insurance provided by the Pension Benefit Guaranty
Corporation (PBGC).

Plan assets are pooled and invested by the plan’s investment manager. If investment earnings exceed the guaranteed
rate, the excess is used to offset future plan contributions. Conversely, if investment earnings are less than the
guaranteed rate, plan contributions will increase. Investment earnings do not affect the benefit amounts promised
to participants—like a traditional defined benefit plan, cash balance benefits are guaranteed.

Why Consider a Cash Balance Plan?

If your business is seeking an opportunity for a greater tax deduction and a way to help key employees maximize
benefits, especially over a short period of time, consider a cash balance plan.

Cash balance plans generally work best for professional groups or closely held family corporations with strong profit
margins. Because of their unique plan design features, these plans enable key employees to save more than they can
under the current defined contribution plan limits, while still enjoying the ERISA protections that come with a qualified
retirement plan.

An Ideal Solution For:

• Businesses with strong profit margins and reliable earnings stream
• Closely held family businesses or corporations with fewer than 25 employees
• Employers seeking to offer a plan with contribution limits over and above current defined contribution plan limits
• Businesses looking for a larger tax deduction than a 401(k) or other defined contribution plan can offer on its own
• Employers looking for greater plan design and contribution flexibility to provide different benefits for different
employees

Learn more about the Pentegra Cash Balance Advantage. Contact the Pentegra Solutions Center
at solutions@pentegra.com, or 855-549-6689.

2 Enterprise Drive, Suite 408 Shelton, CT 06484-4694 800•872•3473 tel 203•925•0674 fax www.pentegra.com