What characterizes a cash balance plan?

A cash balance plan is indeed characterized as a type of defined benefit plan. In this structure, the employer provides a promised benefit that is expressed in terms of a hypothetical account balance. This balance grows over time through contributions made by the employer, often supplemented by interest credits that can vary based on a predetermined formula, which may not directly correlate with actual investment performance.

In distinguishing this plan from others, it's essential to note that it combines features from both defined benefit plans and defined contribution plans. While it primarily falls under the defined benefit category due to the employer's obligation to fund the promised benefit, the individualized account balance statements give participants a clearer understanding of their benefits, almost akin to a defined contribution style. This hybrid characteristic is what makes cash balance plans unique, providing employees with personalized statements that reflect their accrued benefits in a tangible format.

The other options do not accurately capture the essence of cash balance plans; for instance, a defined contribution plan fundamentally differs in structure and employer obligations. Fluctuating contributions based on market performance are not a standard feature of cash balance plans, where the employer typically assures a certain level of benefit regardless of investment outcomes. Lastly, the premise that cash balance plans only benefit higher-income employees overlooks that these plans are designed to provide a