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CB credit for ex-employees?


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My scenario:  2 business partners start a cash balance plan for themselves a few years ago (no employees).  Partner 2 is given a 35,000 contribution credit each year, well below his 415 limit.

One year, Partner 2 decides to deposit 50,000 instead of 35,000, figuring (a) it's deductible within the cushion amount, and (b) we could always amend the formulas later when the plan terminates so that his benefit is exactly what's in the portfolio.

And then sure enough, corporate divorce between the partners at the end of 2019.  Partner 2 has contributed a total of 120,000 for himself, but his actual cash balance benefit is only about 114,000, which is what he got paid a few weeks ago.

So at first glance, too bad for him, especially if Partner 1 (now basically a sole proprietor, I suppose) has no intention of paying us to amend formulas for the other guy.

But now, amid the "divorce proceedings", it sounds as though Partner 1 wishes he could have just paid the guy more from the plan.

My question is, what's the typical methodology to increase a CB formula for someone who's an EX employee?  Assuming Partner 2 has no service for 2020, what would be the typical way to write up an increase for him?  He won't hit any kind of "hours of service" requirement to accrue more. 

I'm using ASC's checklist-formatted CB plan document, if that matters.  Can I at this point increase his benefit either for 2020 (where there may be no service) or any of the prior years (where at least there was), such as to bring his benefits due up to an "appropriate" amount based on the 120,000 he put in?

(Not fully up to speed on what sort of retroactive benefit increases we can orchestrate in a CB plan.)

Thanks....

--bri

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Look to the minimum benefit section of the plan. You want to insert language something like the following: there shall be a minimum cash balance hypothetical account established for partner 2 as of x date in the following amount (put in the amount you want).

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