For employees saving for retirement, an employer-sponsored cash balance plan offers an appealing combination of defined benefit (DB) protections with a benefit expressed as an account balance that looks and feels similar to a 401(k). But there is one important difference between a cash balance plan and a 401(k): Participants in a cash balance plan do not control how the plan’s pooled assets are invested.¹

This distinction makes an in-service distribution at age 59½ potentially appealing to cash balance plan participants. The Bipartisan American Miners Act of 2019² lowered the minimum age at which a qualified pension plan may permit an in-service distribution from 62 to 59½, although plans are not required to offer this feature.³

A 59½ in-service distribution feature does not exclusively apply to cash balance plans, but for participants who are still working, this option can provide a new way to gain control over a benefit without waiting until retirement. An employee can use this feature to roll over an eligible distribution to an individual retirement account (IRA) or to another eligible retirement plan that accepts rollovers while continuing to work.⁴

That flexibility can make a cash balance plan more attractive to employees who value control over their retirement assets. But for employers, the decision is not simply whether participants would appreciate an earlier distribution feature. While adding an in-service distribution option can reduce the plan’s long-term risk exposure by reducing some or all of the plan’s obligation for benefits already accrued (depending on the plan’s design and the form of distribution elected), it can also affect participant behavior, plan funding requirements and financial reporting, asset levels, and administration. In addition, participants who continue working may remain in the plan and accrue additional benefits.

The question for the plan sponsor is whether the added flexibility for employees solves a meaningful challenge for the workforce and whether its value outweighs the potential trade-offs. A 59½ in-service distribution feature may be an attractive enhancement to a cash balance plan, but it is not necessarily the right fit for every plan. The following breaks down some considerations for employers debating whether to add this distribution feature.

What a 59½ in-service distribution can offer participants in a cash balance plan

The appeal of this distribution feature is straightforward: A participant who is still working may be able to move some or all of a vested benefit out of the cash balance plan into a retirement arrangement they control, depending on the plan’s terms. An earlier distribution can be particularly meaningful for someone who has several years before retirement and wants a different investment allocation than what the cash balance plan provides.

For example, a participant whose benefit receives a fixed or indexed interest credit may prefer a different risk-and-return profile through a diversified asset mix or greater equity exposure in the years leading up to retirement. Conversely, a participant who receives an interest credit based on the market return of a plan’s aggressively invested asset pool may desire a more conservative allocation. In either case, while the benefit remains in the cash balance plan, the participant has no control over the allocation. A rollover to an IRA or another eligible retirement plan that accepts rollovers—potentially including the employer’s own 401(k) plan—can provide that control while preserving tax-deferred status.

An in-service distribution can narrow the difference between a cash balance plan and a 401(k) without requiring the participant to leave the employer. But the value of that flexibility depends on the participant and the existing plan. An employee who is comfortable with the plan’s investment structure and values the protections of a DB plan may have little reason to take advantage of the feature.

But for employees who desire greater control over their investments or the potential for additional asset growth, the option can be meaningful.

A 59½ in-service distribution feature can be a recruiting and retention tool

This feature can strengthen the cash balance plan’s appeal to employees who are accustomed to directing their own investments, which may be particularly meaningful for professional services firms competing for employees who expect that kind of control.

Simply offering the option can signal that a company recognizes that employees have different approaches to managing retirement assets. Its effectiveness as a recruiting and retention tool depends on the extent to which employees value added flexibility and on how well it complements the employer’s overall retirement program.

Considerations for offering a 59½ in-service distribution from a cash balance plan

Greater flexibility can create value for cash balance plan participants, but it also introduces trade-offs for both participants and employers. Figure 1 lists both advantages and disadvantages for employers and employees.

Plan sponsors should carefully weigh the advantages of offering a 59½ in-service distribution with some of the drawbacks for employees.

Increased investment risk and decreased benefit security

The PBGC is a federal government corporation that guarantees certain benefits, subject to statutory limits, when a PBGC-covered plan terminates without sufficient assets. PBGC coverage does not apply to every cash balance plan; for example, certain plans maintained by professional service employers that have never had more than 25 active participants are exempt. A participant who receives a full lump-sum distribution no longer has PBGC protection for the distributed benefit and assumes the investment risk associated with managing those assets.

Loss of lifetime income protection

One of the primary benefits of a DB plan is the annuity option, which provides lifetime income. A full lump-sum distribution eliminates the plan’s annuity option for the distributed benefit. A partial distribution may reduce, but does not necessarily eliminate, annuity rights for the remaining benefit. Participants also assume more investment and longevity risk for amounts distributed.

Leakage and taxes

The most compelling use of an in-service distribution is often retaining tax-deferred status through a direct rollover while changing how the assets are invested. An amount paid to the participant and not rolled over generally is included in taxable income, and an eligible rollover distribution paid directly to the participant generally is subject to mandatory federal withholding. Because the participant must be at least age 59½, the taxable distribution generally is not subject to the 10% additional tax, but spending the distribution reduces the assets available for future retirement income.

Liquidity pressure, plan funding, and accounting

In-service distributions reduce plan assets and the corresponding benefit obligation. The distribution’s effect on funded status, required contributions, cash flow, and accounting results depends on the amount distributed, the liability released, and applicable interest and mortality assumptions, as well as any funding-based restrictions on accelerated forms of payment. The impact could be particularly important if many participants take distributions at once or if a market downturn coincides with increased uptake.

Administrative complexity

Adding the in-service distribution feature requires a plan amendment and participant communications, which can increase the work involved in processing distributions and rollovers.

Ready to add a 59½ in-service distribution feature? Next steps for plan sponsors

Before adding this feature to a plan, sponsors should assess how participants are likely to use it and its potential impact.

Start with expected utilization. How many participants are likely to take distributions? When are they likely to do so? How large might those distributions be? An actuary can model the potential effects on plan assets, cash flow, and key funding and accounting measures under different utilization and market scenarios. The analysis should also consider the age and size of the participant pool; the financial effect of distributions may be different in a plan with a substantially older participant base than in a younger plan.

Additional considerations include:

• Whether the plan is open or frozen
• Its interest-crediting rate
• The investment structure
• Whether the feature permits full distributions, partial distributions, or both
• Whether participants continue accruing benefits after a distribution and how later benefits will be calculated and paid
• Funding-based restrictions on lump sums
• Administrative timing and benefit calculations as of the annuity starting date
• Availability of the optional form under applicable nondiscrimination rules
• Whether the 401(k) plan of the sponsoring employer accepts rollovers

Sponsors should evaluate the option alongside the employer’s broader retirement program. If employees already have a robust 401(k) plan with broad investment flexibility, the ability to roll the cash balance plan into the 401(k) could make the in-service distribution feature more valuable.

Whether or not to offer a 59½ in-service distribution feature ultimately depends on whether the investment flexibility creates enough value to justify its impact on the plan. Actuarial modeling can help sponsors assess likely utilization and its effects on funding, risk, and the long-term profile, and participant education can help employees understand both the opportunity and the trade-offs.

¹ U.S. Department of Labor, Employee Benefits Security Administration. (November 2011). Fact sheet: Cash balance pension plans. Retrieved August 28, 2026, from https://www.dol.gov/node/63513.

² Both the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the Bipartisan American Miners Act of 2019 were enacted on December 20, 2019, as part of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94).

³ Internal Revenue Service. (February 2023). Operational compliance list. Retrieved August 28, 2026, from https://www.irs.gov/retirement-plans/operational-compliance-list.

⁴ Chiodi, S. (May 8, 2026). Cash balance plans: Answers to frequent questions from advisors, employers, and participants. Milliman. Retrieved August 28, 2026, from https://www.milliman.com/en/insight/cash-balance-plans-frequent-questions-advisors-employers-participants.