A hybrid fund combines elements of defined contribution and defined benefit arrangements. Part of the benefit may be guaranteed by a formula while part depends on contributions and growth, so risk is shared rather than sitting entirely with one side.
What it means
Hybrids exist to balance the certainty members value with the cost control employers need. A fund might, for example, guarantee a minimum benefit while letting investment returns add to it above that floor. The exact mix varies by fund, which is why the structure has to be captured explicitly for contributions to be calculated correctly.
Where it fits in
For payroll, a hybrid fund's contributions are calculated according to the rules the fund sets, which blend the two approaches. The benefit fund setup records the hybrid structure alongside its calculation basis and rates, so each period's contribution is worked out the right way.
Key rules
- Combines defined contribution and defined benefit features.
- Shares investment and funding risk between employer and member.
- The exact mix varies by fund.
- The structure is recorded so contributions are calculated correctly.
