In hybrid cash balance plans, how is the employee’s account credited?

In hybrid cash balance plans, the employee’s account is credited with both a fixed pay credit and an investment credit. The fixed pay credit is typically a specified percentage of the employee's salary, which means that as the employee earns more, their account balance increases accordingly. This helps ensure that the plan remains tied to the employee’s compensation over time, providing a stable growth factor that employees can count on.

The investment credit, on the other hand, is typically credited at a rate that reflects the performance of a chosen index or interest rate benchmark, which allows for variability while still offering some assurance of a return on the account balance. This combination of credits enables employees to benefit from a predictable structure while also having the potential for growth that is influenced by market conditions.

The other options lack the dual structure of credits that hybrid cash balance plans provide. For instance, a variable rate based solely on market performance would not ensure consistent growth, and focusing solely on employer contributions excludes the employee's own earnings' influence on their account. Additionally, setting credits solely based on tenure does not align with the overarching purpose of hybrid cash balance plans to reflect both salary and investment growth.