Qualified Plans

Hybrid plans combine features of defined benefit and defined contribution plans, with four common types: cash balance/pension equity, target benefit, money purchase, and age-weighted profit-sharing plans. Many employers have moved from traditional defined benefit plans to hybrids to attract younger, more mobile workers and reduce costs. Cash balance and pension equity plans calculate benefits based on a hypothetical account balance or equity formula, often costing employers less and providing more predictable contributions. Benefits in these plans are usually offered as a lump sum, which can be taken directly or converted to an annuity, increasing portability for employees who change jobs. Like defined contribution plans, companies set up individual accounts and may credit contributions using fixed percentages or formulas based on age, service, or earnings. Target benefit plans use defined benefit-style formulas to set a target benefit, but the actual retirement amount depends on investment performance. Money purchase plans are defined contribution plans with fixed annual employer contributions, but they carry the mandatory funding requirements of defined benefit plans. Age-weighted profit-sharing plans allocate more contributions to older employees to help them reach a similar projected retirement benefit as younger workers. Overall, hybrid plans aim to balance predictable employer costs with portable, performance-based benefits for employees.