Private Pensions: Implications of Conversions to Cash Balance Plans Page: 3 of 70
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Contents
Letter 3
Appendixes Appendix I: Scope and Methodology 42
Appendix II: Pension Benefits Simulation Model 45
Appendix III: Cash Balance Plans and Minimum Lump Sum
Distributions 58
Appendix IV: Comments From the Department of the Treasury 64
Tables Table 1: Lump Sum Distributions From a Traditional Final Average
Pay Formula and a Cash Balance Formula After
Conversion 22
Table 2: Lump Sum Wearaway Created at Conversion for a
45-Year-Old Worker 29
Table 3: The Creation of Wearaway Periods After Conversion by
Fluctuation in the Mandatory Discount Rate for Defined
Benefit Plans 31
Table 4: Early Retirement Benefit Wearaway Payable at Age 60 32
Table 5: Assumptions for the Baseline Simulations We Report 50Figures
Figure 1: Participant Coverage in Fortune 1000 Cash Balance
Plans
Figure 2: Annual Annuity Benefits Under a Cash Balance Formula
and a Final Average Pay Formula
Figure 3: Rate of Accrual for a Cash Balance Formula and
a Traditional Final Average Pay Formula
Figure 4: How Conversion to a Cash Balance Plan Potentially
Lowers Annuities
Figure 5: Incremental Benefit Accruals for Workers of Different
Ages Under Different Formulas
Figure 6: Comparison of Benefits From Weighted Pay Credit
Formulas, Basic Cash Balance Formula, and Final
Average Pay Formula
Figure 7: The Whipsaw Effect: Hypothetical Balance Is Less
Than Lump Sum Benefit
Figure 8: Hypothetical Balance Is Greater Than Lump Sum BenefitGAO/HEHS-00-185 Cash Balance Plans
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United States. General Accounting Office. Private Pensions: Implications of Conversions to Cash Balance Plans, report, September 29, 2000; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc291298/m1/3/: accessed March 28, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.