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Tell to the IRS actuary that if he/she is using the "accrued-to-date" approach, the total average compensation should be used for a cash balance plan, as you would use for a career average db plan. This should give you the same results as if you just do calculations on the annual basis.

Assuming your client already has 10+ years of participation and his 3-year-average salary is above $220k, this is correct. However you may gain some of this decrease back when the IRS issues new 415 $-limit. Yes he can forego portion of his benefits upon plan termination. He will need to fund by the distribution date based on the decreased lump sum that corresponds to his age at distribution.

This issue came up at this year's ACOPA conference in Chicago. In a major session, the IRS rep Michael Spaid stated the rule per the IRS actuary described here, then totally backed down and agreed when everyone said he was misstating the rule and it should be done year by year.

here is the spreadsheet (and a spreadsheet for covered comp values if anyone still uses those values). spreadsheet also contains a table for estimating soc sec if you plug in your historical comp. at least I come close to matching my own results on that when I plug my actual comps, but who knows if I really have that all set up properly. plugged in the latest national wage average released and the generates the 132,900 value for the taxable wage base as well plugged the cpi-w values and that generates the 2.8% COLA increase. nice to know that I somehow managed to create a spreadsheet that calculates values that match the govt for taxable wage base and COLA! guess even a blind pig can find an acorn Since 1975, Social Security's general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. We call such increases Cost-Of-Living Adjustments, or COLAs. We determined a 2.8-percent COLA on October 11, 2018. We will announce the next COLA in October 2019. indexed limits and soc sec.xlsx covered comp at 132900.xls

Having been significantly involved with Paul Schultz when he developed and wrote that 1/2% rule (I was heading the IRS Q&A sessions for ASPPA and Paul would attend our prep meetings), I know from our discussions that he did not intend the rule to be used in this manner of calculation. That doesn't mean the IRS can't change their approach, but this is apples and oranges. Using current comp vs average accrual (the "divide by years" piece) is nonsensical. Push back hard. If you have to, tell the actuary you disagree and that you have to ask her to seek "technical advice". They hate that because they then have to justify their position to higher ups; just the request alone often gets them to back down.

I would think that if you're going to divide by years of credited service, you would also divide by an average compensation. Otherwise, you're going to divide their average accrual by the current pay? That doesn't make sense to me. You could be giving everyone 0.5% of average pay each year, but if their comps increase, you'll fail the test.