In a cash balance plan, all contributions typically come from which of the following sources?

• A. Government grants
• B. The employer
• C. Both the employer and the employee equally
• D. The employee

Answer: (B)

Verified step by step guidance

1. Understand the concept of a cash balance plan: A cash balance plan is a type of defined benefit retirement plan where the employer credits the participant's account with a set percentage of their annual compensation plus interest credits.
2. Identify the source of contributions: In a cash balance plan, contributions are typically made by the employer. The employer is responsible for funding the plan and ensuring that the promised benefits are available to employees upon retirement.
3. Clarify the role of the employee: Unlike defined contribution plans (e.g., 401(k)), employees do not directly contribute to a cash balance plan. The employer manages the funding and investment of the plan.
4. Eliminate incorrect options: Government grants are not a source of funding for cash balance plans. Contributions are not equally shared between the employer and employee, nor are they solely made by the employee.
5. Conclude that the correct source of contributions in a cash balance plan is the employer, as they are responsible for funding the plan and providing the promised benefits.