Financial insecurity can hurt retirees’ lifestyles and health, but market-based cash balance plans might be able to protect future retirees’ security, according to October Three Consulting’s “2026 Lifetime Income Report: Closing the Gap Between Savings and Security,” published Wednesday.
Market-based cash balance plans—which are, by definition, defined benefit plans—are the “most balanced and modern [DB] design,” according to the October Three report, which stated the plans are “an almost risk-free solution for employers” that provide employees with higher balances than traditional fixed-rate cash balance plans.
In a cash balance plan, all assets are held in a pooled account, and the participant’s benefit is determined by the terms of the plan document. The account balance grows through pay credits, often defined as a percentage of an employee’s annual salary, and interest credits, at either a fixed or variable rate.
In a market-based cash balance plan, the interest credits are derived from the actual return on plan assets, as opposed to a traditional cash balance plan’s fixed rate of return or a rate of return tied to a bond index. Non-market cash balance benefits tend to be less than traditional DB plans due to low interest credits and often conservative investments, the report stated.
Almost 60% of all DB plans in the U.S. are now cash balance plans, according to October Three’s “Pension Trends 2025: Cash Balance Plans Take Over—and Market Interest Credits Surge.” In 2018, only about 10% of cash balance plans used a market-based crediting rate, but that figure is now about 60%.
Lifetime Income Solved?
October Three’s report held these specific cash balance options up as a potential method to achieve the common goal of “lifetime income”—regular payouts to retirees on which they can base their financial plans.
Among respondents to October Three’s survey, 75% of those with some form of lifetime income reported that they felt financially secure in retirement, compared with 57% of those without a “lifetime income” setup. Meanwhile, 60% of those without lifetime income said financial concerns had caused them to cut back on leisure activities.
Research leveraging data from the University of Michigan’s “Health and Retirement Study” showed that retirees who feel insecure about their finances are also more likely to experience higher rates of depression, chronic illness and cognitive decline than those who feel secure.
“Retirement income security is not simply about having enough assets,” October Three’s report stated. “It is about having the confidence to use those assets in a way that supports both financial well-being and life satisfaction.”
A market-based cash balance plan gives employees the “gold standard” of what they are looking for from an income perspective, along with an accumulation component that “looks very much like a [defined contribution] plan,” says Idan Shlesinger, a partner in October Three and its retirement solutions practice leader. He says market-based cash balance plans represent “the industry learning what works and what doesn’t.”
What Employers Can Do
Shlesinger says the ideal situation is for an employer to offer both a market-based cash balance plan and a DC plan. He explains that while market-based cash balance plans provide security, retirees likely should not have all their money “locked into a guaranteed income stream” in the event they need to withdraw enough to finance unexpected events—or even just a desire to take a vacation.
But offering both plans does not mean employers have to double their spend. Rather, they can divide the money they would spend on one account into two, Shlesinger says.
“For most people, there’s a strong benefit to have a tranche of retirement savings … geared towards security and another tranche … geared toward flexibility,” says Shlesinger.
Shlesinger cautions that while individuals can purchase an outside-the-plan lifetime income product, such as a retail insurance annuity, the returns pale in comparison to those from an in-plan feature. He says that out-of-plan products can be more costly since companies selling them must factor commissions, expenses and profit margins into their pricing.
Moreover, out-of-plan products’ take-up rates are in the single digits, because people are “uncomfortable handing over their savings to an insurer they barely know for a product few understand,” the report stated.
Buying an outside guaranteed income solution is the “best an individual can do [that’s in their control],” says Shlesinger. But he says the “best bet” is to ask an employer to put a market-based cash balance plan in place.