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Does the statement for a Cash Balance Plan equal the true PV of the benefit?


Guest jbergstrom

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Guest jbergstrom

As a CFP/CDFA, I often deal with pension present value calculations for divorce situations. Often defined benefit pension (employer) will provide the employee the monthly benefit upon his/her retirement (or at various ages). Under a Cash Balance Plan, the aggregate present day hypothetical 'value' is provided by the employer (usually annually?). My question is this: Does that annual phantom value of the account balance (credit) -as communicated to the employee- equate to a present value for determining an asset value of a potential future stream of income? Conventional wisdom would say it is. [based on the theory that a Cash Balance Plan is a dollar amount in present value form for the future benefit of an employee. Trying to determine a future stream of income, only to actuarial back-out a PV seems like an Excel spreadsheet circular reference!] *As a follow-up, Are Cash Balance Plans transferable via a QDRO to an ex-spouse as are Defined Contribution plans?

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QDRO question: They are usually similar, but it depends on plan terms and policies that should be reflected in QDRO procedures.

Did you intend to put this in the 409A column? Getting outside of qualified plans adds some wrinkles to QDRO questions.

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A Cash Balance plan is generally a type of DB plan qualified under 401(a) so yes they are absolutely subject to QDROs.

Typically speaking yes the hypothetical account balance is the amount due a participant though there could be some circumstances where it might be higher.

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Guest jbergstrom

Yes, I meant to put it in the 409A (vs QDRO- it really isn't a QDRO question- I threw that in the end as an after-thought).

I went through the Pension Plan Answer book (from 2009) and it said the Cash Balance Plan employer should provide a forecast/projected balance at the assumed employee's retirement age; from there a present value could be calculated.

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What do Cash Balance plans have to do with 409A? Aren't those non-qualified deferred comp plans? Cash Balance plans are qualified pension plans.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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If the cash balance plan is not the plan providing the top heavy minimum benefit, and if the plan was not converted from a traditional plan, and if it does not have some other inherit larger benefit formula that might apply, and if it uses a crediting rate that is not greater than a market rate of return, then it is highly likely that the lump sum payable is equal to the cash balance account.

edit: typo

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