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What is a Cash Balance Plan and How Does it Work for Avaya Holdings Employees?

Healthcare Provider Update: Avaya Holdings offers health insurance coverage to its U.S. employees through Aetna-administered plans. Benefits include medical, dental, vision, and life insurance, along with access to Health Savings Accounts (HSAs), disability coverage, and preventive care services. Avaya Holdings Healthcare costs in the United States are projected to continue rising through 2026, with insurers proposing significant premium increases for Affordable Care Act (ACA) plans. A recent analysis found that ACA insurers are seeking a median premium increase of 15% for 2026, marking the largest hike since 2018. This surge is attributed to factors such as the anticipated expiration of enhanced premium tax credits, rising medical costsincluding expensive medications and increased hospital staysand a shift in the risk pool towards higher-cost enrollees. Without the renewal of enhanced subsidies, out-of-pocket premiums for ACA marketplace enrollees could increase by more than 75% on average. Click here to learn more

'Cash balance plans can provide Avaya Holdings employees with a unique opportunity to grow their retirement savings through tax-deferred contributions and higher contribution limits, offering an important strategy for those looking to enhance their financial future.' – Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

'Cash balance plans can offer Avaya Holdings employees a powerful tool to build substantial retirement savings with the added benefit of employer-managed investments, promoting a more secure financial future for high-income workers.' – Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

What a cash balance plan is and how it works.
The key benefits and limitations of cash balance plans.
How these plans compare to traditional retirement vehicles like 401ks.

Among the various retirement plan options available today, cash balance plans are becoming better known as a useful instrument for high earners, particularly those employed by large corporations like Avaya Holdings. These plans offer significant advantages to those who want to save more than standard retirement vehicles like 401ks or individual retirement accounts (IRAs) allow because they combine features of defined-benefit and defined-contribution plans.

A Cash Balance Plan: What Is It?

A cash balance plan is a type of defined-benefit pension plan in which benefits are represented as an account balance. The primary distinction between it and a defined-contribution plan, such as a 401k, is how the account is funded and maintained, even though it functions similarly. Employer contributions to each participant's account are made annually under a cash balance plan, which offers two different kinds of credits: interest credits and pay credits. Over time, these contributions build up, providing the worker with a predetermined account amount when they retire.

For example, an employee may decide to convert a $500,000 cash balance account into an annuity upon retirement, which would provide a consistent income stream for the duration of their retirement. To continue tax-deferred growth, they can also take a lump sum payment and roll it over into an IRA or another employer-sponsored retirement plan.

Cash balance plans are subject to annual inflation-adjusted contribution restrictions set by the Internal Revenue Service (IRS). A participant who is 62 years of age or older may accumulate up to $3.6 million in their cash balance plan by 2025. This makes it a desirable choice for individuals looking to signficantly grow their retirement savings due to its high cap.

In this article, we will discuss:

What a cash balance plan is and how it works.
The key benefits and limitations of cash balance plans.
How these plans compare to traditional retirement vehicles like 401ks.

A Cash Balance Plan: What Is It?

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Limits on Contributions and Comparison to Conventional Plans

Contribution caps offered by cash balance plans in 2025 are significantly higher than those of 401k plans. While 401ks will require a catch-up contribution of $11,250 for employees aged 60 to 63, cash balance plans offer more flexibility in terms of contribution limitations, especially for high-income earners. These caps often surpass the contribution limits of conventional retirement plans by many times, but they can change depending on variables like age, income, and work history.

Principal Benefits of Cash Balance Plans

1. Tax-deferred growth: Cash balance plan contributions are tax-deferred, which reduces taxable income and provides immediate tax benefits. Participants can build money for retirement and save more on taxes as a result.
2. High contribution limits: Cash balance plans, which are especially advantageous for high-income individuals or those wishing to increase their retirement savings later in their careers, allow contributions far greater than the 401k plan limits.
3. Rollover flexibility: Participants can transfer their cash balance funds into an IRA or another retirement plan when they retire, giving them greater control over how they manage their retirement assets and allowing for ongoing tax-deferred growth.
4. Employer-managed investments: Cash balance programs shift the investment risk to the employer, as opposed to 401k plans, where the employee bears this responsibility. Employees at Avaya Holdings, who might not have the time or background to handle their own retirement plans, can feel more at ease knowing the employer manages this process.
5. Federal protection: The Pension Benefit Guaranty Corporation (PBGC) provides federal protection for benefits under cash balance plans, offering an additional layer of assurance.

Possible Drawbacks to Cash Balance Plans

1. Restricted availability: Compared to other retirement plan options, cash balance plans are less accessible. These plans are typically offered by large companies, like Avaya Holdings, and may not be available at smaller firms or those without similar pension offerings.
2. Taxation on distributions: Employees will pay taxes on distributions even though contributions are tax-deferred. If the account has grown substantially, this could result in a larger tax obligation upon retirement.
3. Best for high-income workers: Cash balance plans are especially beneficial for high-income workers due to their large contribution limits. The advantages of these plans may not be as noticeable for individuals with lower incomes.
4. Complexity: People who are unfamiliar with pension plan arrangements may find it challenging to understand cash balance plans. It is often recommended to consult a financial advisor to navigate the intricacies and confirm the plan aligns with long-term retirement goals.

In Conclusion

Cash balance plans offer a unique and effective means for Avaya Holdings employees to build up sizable retirement funds. These plans combine elements of defined-benefit and defined-contribution plans, offering significant tax-deferred contributions, excellent federal protection, and a high degree of investment management assurance.

Although typically available at larger companies like Avaya Holdings, cash balance plans are particularly suitable for high-income earners who are looking to enhance their retirement funds. Despite their complexity, for those who qualify, these plans present an attractive option due to their potential for significant retirement accumulation. They can serve as an effective tool for securing a comfortable retirement, whether used alone or in conjunction with other retirement vehicles.

Before determining whether a cash balance plan is the best option for your financial future, it is essential to comprehend the precise terms, conditions, and tax ramifications, just like with any other retirement plan. You may confirm that your retirement plan aligns with your long-term goals and objectives by speaking with a financial advisor.

Cash balance plans may provide Avaya Holdings employees with a dependable source of retirement income, especially for those nearing retirement. These plans allow participants to begin collecting benefits as early as age 55, compared to other retirement savings options that require waiting until age 59½ to access funds without penalties. This flexibility, combined with the plan’s high contribution limits and tax benefits, makes cash balance plans a desirable choice for employees looking to improve their retirement strategy.

By combining features of both defined-benefit and defined-contribution plans, a cash balance plan is an effective retirement savings tool. With its larger contribution limits, government guarantees, and tax-deferred growth, it offers a dependable means for employees at Avaya Holdings to build significant retirement savings. Explore the advantages and challenges of this growing retirement plan today and consider how it can boost your long-term financial wellbeing.

Sources:

1. Tergesen, Anne. 'The Retirement-Savings Weapon Doctors and Lawyers Use to Build Wealth.' Wall Street Journal , 14 Mar. 2025, www.wsj.com/personal-finance/retirement/cash-balance-plans-retirement-high-earners-71bfed2e?utm_source=chatgpt.com .

2. Chubb, Chad. 'Cash Balance Plan Explained: Maximize Tax Savings and Build Wealth.' WealthKeel , 10 Apr. 2025, www.wealthkeel.com/blog/cash-balance-plan-retirement/?utm_source=chatgpt.com .

3. 'Cash Balance Pension Plans: A Complete Guide.' October Three , 10 months ago, www.octoberthree.com/articles/cash-balance-pension-plans-a-complete-guide/?utm_source=chatgpt.com .

4. 'Cash Balance Plan vs. 401(k): A Simple Comparison.' Emparion , 7 months ago, www.emparion.com/cash-balance-plan-vs-401k/?utm_source=chatgpt.com .

5. 'Cash Balance Pension Plans: A Complete Guide.' October Three , 10 months ago, www.octoberthree.com/articles/cash-balance-pension-plans-a-complete-guide/?utm_source=chatgpt.com .

How can employees at Avaya Inc. ensure they are adequately prepared for retirement, considering the various types of pensions available under the Avaya Inc. Pension Plan? What steps should be taken to understand the key features of the pension plan, and how can they assess their individual needs relative to the benefits offered by Avaya Inc.?

Preparation for Retirement at Avaya Inc.: Employees at Avaya Inc. should first review the company’s Summary Plan Description for the pension plan details, which outline the types of pensions available and the processes for claiming them. It's crucial to understand the different pension types—service, deferred vested, and disability pensions—each with specific eligibility criteria and benefits. To prepare adequately, employees should estimate their pension benefits using tools provided by Avaya Inc., attend financial planning seminars offered by the company, and consider consulting with a financial advisor to assess how the pension fits into their broader retirement strategy.

Can you elaborate on the service pension eligibility criteria set by Avaya Inc.? How does age and credited service interact with this criterion, and what unique circumstances should employees at Avaya Inc. be aware of that may affect their eligibility for a service pension?

Service Pension Eligibility Criteria at Avaya Inc.: Eligibility for a service pension at Avaya Inc. is determined by age and credited service. Employees qualify at any age with 30 years of service, at age 50 with 25 years, at 55 with 20 years, and at 65 with 10 years. It’s essential for employees to understand that these criteria are strict; for instance, an employee aged 51 with 24 years of service does not qualify. Employees should plan their retirement age accordingly and consult with HR to confirm their credited service years.

What are the implications of early retirement under the Avaya Inc. Pension Plan? Employees at Avaya Inc. who are considering early retirement should understand both the benefits and potential losses associated with taking retirement benefits before the age of 55.

Implications of Early Retirement: Opting for early retirement at Avaya Inc. can lead to reduced pension benefits, especially if retirement occurs before age 55 with less than 30 years of service. The plan applies an early commencement discount, reducing the pension by 1/2% for each month before age 55. Employees considering early retirement should carefully evaluate how the reduction impacts their financial stability and may want to strategize with HR or a financial advisor to mitigate the reduction's effect.

What is the process for employees at Avaya Inc. to claim a deferred vested pension, and what specific conditions must be met for them to initiate this process? Employees must be informed about the timeline required for claims as well as the potential impact of their age and service duration on their pension amounts.

Claiming a Deferred Vested Pension: To claim a deferred vested pension at Avaya Inc., employees must meet certain conditions, such as being vested and having terminated employment. The pension commencement generally aligns with reaching age 65 or upon earlier termination. Employees must contact the Avaya Pension Service Center to initiate the process, providing necessary documentation and adhering to specified timelines, ensuring they understand the impact of early commencement on their pension amounts.

In what ways does Avaya Inc. support employees returning to work after retirement? Specifically, how does reemployment affect the pension benefits that retirees receive? Employees should consider how their decisions to return to work may minimize or suspend their pension benefits.

Returning to Work Post-Retirement: If an employee at Avaya Inc. returns to work after retirement, their pension benefits might be suspended or reduced, depending on the terms outlined in the pension plan. This policy is intended to adjust benefits when retirees re-enter the workforce, potentially affecting their financial planning. Employees should verify the specific rules with the pension service center and consider the financial implications before deciding to return to work.

How does the Mandatory Portability Agreement (MPA) influence the retirement benefits of Avaya Inc. employees transitioning between positions in affiliated companies? Employees should understand how service credit is recognized and transferred under the MPA and its impact on their retirement planning.

Impact of the Mandatory Portability Agreement (MPA): The MPA affects Avaya Inc. employees transitioning between positions within affiliated companies, allowing for the transfer of service credits. This agreement is crucial for employees moving within the company structure, as it ensures that their pension benefits are maintained and accurately calculated based on cumulative service, fostering seamless transitions and sustained benefit accrual.

What key information should employees at Avaya Inc. know regarding their rights under the Employee Retirement Income Security Act (ERISA) as they navigate the pension benefit process? Understanding ERISA rights is crucial for employees to effectively advocate for their benefits and understand their protections.

Understanding ERISA Rights at Avaya Inc.: Employees at Avaya Inc. should be aware of their rights under the Employee Retirement Income Security Act (ERISA), which safeguards employees' benefits. Understanding these rights is essential for effectively managing their pension plans and ensuring they receive all entitled benefits. Employees should familiarize themselves with the claim and appeal procedures provided in the plan documents to advocate effectively for their rights.

How do survivor benefits work under the Avaya Inc. Pension Plan? Employees and their beneficiaries should be aware of the conditions under which these benefits are paid and how they can designate beneficiaries to ensure compliance with Avaya Inc. policies.

Survivor Benefits under Avaya Inc. Pension Plan: Avaya Inc.'s pension plan provides survivor benefits, which are crucial for employees to arrange financial security for their beneficiaries. Understanding the conditions under which these benefits are paid and how to designate beneficiaries properly ensures that the employees' families are protected in case of the employee's death.

Can you explain the significance of the Pension Benefit Guaranty Corporation (PBGC) in relation to the retirement benefits that employees of Avaya Inc. may expect? Understanding the role of the PBGC could help clarify what protections are in place for employees in the case of plan termination.

Role of the Pension Benefit Guaranty Corporation (PBGC): The PBGC plays a protective role for Avaya Inc. employees by ensuring that pension benefits are secure even if the plan faces financial difficulties. Employees should understand how the PBGC's coverage affects them, particularly in scenarios where the company’s pension plan might be terminated or underfunded.

If Avaya Inc. employees want to learn more about their pension benefits or have specific questions about the retirement process, who should they contact and what resources are available to them? This question prompts employees to engage with the Avaya Inc. Pension Service Center and access information crucial for their retirement planning.

Accessing Pension Information and Assistance: Employees seeking more information about their pension benefits or needing specific help regarding their retirement process should contact the Avaya Pension Service Center. This center provides detailed guidance, handles claims and appeals, and offers comprehensive support to ensure employees understand and can effectively manage their pension benefits.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Avaya Holdings has announced a major restructuring plan involving significant layoffs and changes to their benefits and retirement plans. The company is focusing on streamlining operations to improve profitability, which includes reducing its workforce and altering pension and 401(k) contributions for current employees.

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For more information you can reach the plan administrator for Avaya Holdings at 350 Mt Kemble Ave Morristown, NJ 7960; or by calling them at +1 908-953-6000.