Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 23

Just as the target benefit plan is a defined contribution plan with a defined benefit formula, a cash balance plan is a defined benefit plan in which the participant views an account balance as being his or her benefit. Benefits accrue to participants based upon this hypothetical account balance and a fixed commitment for a return. The employer funds the plan based upon actuarial estimates.

Some plans have benefit formulas that are more like a traditional defined benefit plan, but these plans report the cash value of this benefit to the employee on their annual statement.

Upon eligibility for a distribution, the participant has the right to take a lump-sum distribution in cash or an annuity distribution. It is somewhat uncommon for traditional defined benefit plans to allow for lump-sum distributions; except in the case of small balances.

These plans are subject to the normal rules for defined pension plans—actuarial calculations, mandatory funding, joint and survivor annuity distribution elections (note these plans commonly allow for lump-sum distributions), AFTAP and PBGC coverage.

The amount of controversy regarding these plans has started to fade as the courts and subsequent legislation have established some principles controlling their design and operation. Notwithstanding this added clarity, these plans and the benefit accumulations continue to be complex. As such, the auditor is advised to be particularly diligent in gaining understanding of the plan. The intricacies of these plans are beyond the scope of an introductory course and will not be discussed in the remainder of this course.