Explain why mobile employees might prefer cash balance plans

Explain why mobile employees might prefer cash balance plans over defined benefit plans.

Solution

Mobile employees might prefer cash balance plans as these plans provides the employees with an employer\'s contribution which is a percentag of each year\'s earnings. It also provides a rate of return on this contribution. Defined benefit plans, on the other hand, will give the employee a flat amount based on the years of service. As mobile employees do not work with one single employer for a long period of time and keep chaning jobs, they benefit more from the cash balance plans. Cash balance plans have a foucs on portability, which suits the requirement of mobile employees more than than defined benefit plans. As mobile employees changes jobs frequently, they do not want a plan based on their final earnings. Hence for mobile employees, cash balance plans are more beneficial.