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Benefits August 24, 2026
How the New Wave of DB Can Provide Retirement Income
Cash balance plans grew by 1,025% over two decades, according to an Ascensus report.
Reported by
Emily Boyle
Plan sponsors seeking to provide their participants with guaranteed income in retirement may find what they are looking for in the new wave of defined benefit plans gaining steam.
Cash balance plans—which serve more than 9.5 million participants collectively holding more than $1 trillion in assets—are no longer “niche” solutions, according to the “2025 Cash Balance Outlook and Trends Report” from FuturePlan by Ascensus. From 2003 through 2023, cash balance plans grew by 1,025%, now accounting for more than 55% of all U.S. defined benefit plans.
Though they are legally DB plans, cash balance plans are considered “hybrid” offerings because they incorporate elements of both traditional DB and defined contribution plans, according to Idan Shlesinger, a retirement solutions practice leader at October Three Consulting.
In a cash balance plan, all assets are held in a pooled account, and a participant’s benefit is determined by the terms of the plan document. As in a traditional DB plan, employers make contributions for the benefit of each employee. Instead of using an actuarial rate of return, however, the employer makes contributions from two sources: first, a pay credit that is either a fixed amount or a percentage of annual compensation; and second, an interest credit rate that is typically set to the rate of return of a security, an index or the actual return rate of the portfolio.
“At its core, a [cash balance plan] is a defined benefit plan,” Shlesinger says. It has “DB rules in a DC construct.”
The Impetus for the Wave
Similar to a traditional DC plan, a cash balance plan maintains an individual account balance. But upon retirement, Shlesinger says, a participant has the option to convert either a portion or all of their balance into guaranteed lifetime income.
Cash balance plans were rare, according to Shlesinger, because the benefits of the plans centered on their tax-optimization and tax-deferral strategies for higher-income earners only. With the industry’s focus shift to decumulation and retirement income more broadly, plan sponsors’ attention has shifted to cash balance plans’ ability to offer lifetime income.
A ‘Complement’ to a DC Construct
Rather than offer a cash balance plan in isolation, Shlesinger says plan sponsors often introduce cash balance plans as “complements” to DC plans.
According to research published by Calamos Investments earlier this year, 96% of cash balance plans are combined with a 401(k), profit-sharing or other DC plan.
Ernie Caballero, a managing director at Goldman Sachs Asset Management L.P., says he anticipates increased adoption of market-based cash balance plans, specifically when paired with DC plans.
Unlike a traditional cash balance plan, a market-based cash balance plan derives interest credits from the actual return on assets, as opposed to a fixed rate of return or rate of return tied to a bond index. Almost 60% of all DB plans in the U.S. are now cash balance plans, according to October Three Consulting’s “Pension Trends 2025: Cash Balance Plans Take Over—and Market Interest Credits Surge.” In 2018, only about 10% of cash balance plans used a market-based crediting rate, but that figure now sits at about 60%.
While DC plans may receive a maximum of $72,000 in total annual contributions under current IRS limits, market-based cash balance plan contributions can go up to $360,000 annually in 2026 and up to $3.7 million at retirement.
Aside from allowing participants higher paycheck deferrals and the option to convert assets to lifetime income, market-based cash balance plans provide participants with institutional portfolio construction—which includes access to private markets, Caballero says. He estimates that a 15% allocation to diversified private markets could improve long-term portfolio performance by 50 basis points, generating 20% to 30% more resources for participants at retirement.
Looking Ahead
Portability is another benefit to cash balance plans, in Caballero’s view. When employees switch employers, they can roll their cash balance into either a new cash balance plan, if offered by the new employer, or into a DC retirement plan. To the former employer, the chief benefit of portability is the sponsor’s ability to cease carrying on their books their terminated, vested employees, which Caballero estimates comprises 20% to 30% of an employer’s pension benefit obligation. Instead, he says, plan sponsors can focus on the retirement outcomes of their active employees.
Cash balance plans previously had minimal traction because they were not widely publicized, Caballero says. Many plan sponsors with whom he has spoken over the years simply did not know it was an option to consider. While the IRS in 2010 issued final regulations providing guidance on cash balance plans, sponsors simply did not pay as much attention as they did to legislation such as the Setting Every Community Up for Retirement Enhancement Act of 2019.
William Strange, a principal in and consulting actuary at Milliman, says that despite the impressive cash balance plan growth, “the jury is still out” on how many more employers will adopt them.
Stange says the solution requires employers to be comfortable with the administrative complexity of rolling over a defined balance into an annuity-like payout in retirement, as well as with educating employees on when—and, potentially, when not—to open an account.
