Further, cash-balance plans come in different flavors, depending on the plan’s choice of interest credit formula:
Variable interest credit (VIC) — The interest credit is reset each year based on an external market rate, such as the yield on the 30-year US Treasury bond. (Some newer plans set the interest credit based on the rate of return on plan assets.)
Fixed interest credit — The interest credit is set at a fixed level, such as 5%.
Minimum interest credit — The interest credit floats based on an external rate, but is subject to a floor. For example, the credit might be the greater of the yield on the 30-year Treasury bond or 5%. This formula has both VIC and fixed interest credit characteristics, driven by the relationship between the external rate and the minimum credit…