Effen

I agree, maybe I should of said, ask an actuary who knows what they are doing. It is a little difficult to respond to "Need help calculating contribution for second year of plan." How should I (we) respond to someone who is obviously doing cash balance work when they probably shouldn't be. If they don't know where to start, there isn't much we can do for them here in cyberspace. Hopefully, somewhere in their organization, they have someone who knows, I was assuming this person would be an actuary and therefore, they need to seek help from that person. Here are a few more possible responses: - Don't we all - How did you do the first year? - Didn't your computer give you the answer like it did in the first year? - Try doing a little research - Send the work to me and I will be glad to take care of it for you

Call your actuary.

Thank you both for responding. I realize that the QDIA don't require a target date fund, but they seem to be popping up in many 401(k)s due in large part to the QDIA Regs. My question really was, why aren't they popping up in 403(b)s, or are they?

And so it begins... MultiIndustry_Funding_Letter11_12_.pdf

First, I am not a 403(b) person, but a friend of mine asked me why his mission (church plan?) recently told him that all new contributions would go to a new 403(b) vendor and that he could no longer use the vendor he was currently using. Apparently old money was allowed to stay, but new money needed to go to the new vendor. The remaining single vendor was available under the multi-vendor arrangement. When he questioned them, they responded that a new Federal law is forcing them to use a single vendor. I poked around and didn't see any requirements to use a single vendor. Is there some reason why they would have forced this? Also, the new vendor doesn't offer any target retirement age funds, but it did offer "active management". Don't 403(b)s have issues with default options? As we see 401(k)'s nudged into offering target funds, aren't 403(b)s being nudged as well? The plan does have a match, so it would seem that a default fund would be necessary. Any comment would be helpful.

1) If no one "benefits" in both the DB and the DC, the combined plan deduction limits of 404(a)(7) don't apply. 2) If the plan is covered by the PBGC, the combined plan deduction limits of 404(a)(7) don't apply.

OK, I think I finally understand your question. Assuming your cash balance plan does not credit interest at higher than market rates, I will agree that the answer to your question is unclear. That said, I would make sure any of my plans at least pay the TH min, applying the 417(e) rates if paid in a lump sum. I haven't yet been able to find anything to definitive prove either position. I guess we won't know for sure until we see some Regulations.

I think Mike and I are in complete agreement - you must apply the 417(e) rates if you are going to pay out the TH minumum as a lump sum. If you had a plan that provided only the TH minimum, would you still think that you don't need to apply 417(e)? If so, what is the purpose of 417(e)? Yes, TH mins are expressed as monthly annuities payable at NRD, but 417(e) applies to any distribution payable more frequently than a lifetime annuity (or joint lifetime). Therefore, if the benefit is actually paid as a lump sum, it is subject to 417(e). Just because the plan is a cash balance plan doesn't eliminate the 417(e) requirements on the TH benefits. Maybe your question is, if I credit a cash balance accrual equal to the present value of the TH benefit based on plan conversion methods, do I still need to track the TH minimums or am I deemed to have satisified TH. If so, than I think you would still need to determine the TH minimum as an AB payable at NRD, then apply the current 417(e) rates and pay the participant the greater of that calculation or their current cash balance account.

I agree with Mike. The TH min. is expressed as a monthly benefit payable at NRD for life. If you pay it out in a lump sum, you need to account for the 417(e) minimums.

I would prefer NOT to have a TNC. My question is, do you think my assumption would be "unreasonable"? Carrots makes a good point in that assuming they retire at the end of the year would create a TNC where I might not want one if they actually did retire early in the year (before they accrued the benefit). They would be forced to overfund their plan for a benefit that may never accrue.

Pre-PPA I don't think it was ever a "problem" to assume individuals working beyond NRD retired on the valuation date and therefore had no normal cost. This is fairly common in "real" retirement plans. If I used this method to do a small plan's BOY valuation where the primary person is beyond NRD I don't think I would have a TNC for that person. Then, if they worked the year and earned the benefit, their accrual would be part of Yr2's Funding Target and therefore amortized (assuming a funding shortfall) and not immediately funded like TNC. This seems to follow the old theory that pushed you to immediate gain methods if you had no active participants accruing benefits. Typically I would have done these types of plans using EOY valuations, but w/ PPA it seems like shifting to BOY would actually be beneficial. I could use the 150% to fund the accrual if needed, or shift it into future if the client doesn't have the cash. Does that seem right? Comments? Would anyone argue it is "unreasonable" to use a BOY valuation?

The plan still needs to satisify the top heavy requirements so I would say "yes". You need to be able to demonstrate that the cash balance account is > top heavy requirements.

How many past service years are you granting? If you would have implemented the amendment that many years ago, without any past service, would any NHCEs have benefited? If so, you might have an problem. It is a facts/circumstances test so there isn't any real way of knowing for sure.

I'm not so sure that it would be. At the least I would have the plan attorney explain the possibility to the client and let them make the decision. 1.401(a)(4)-5 contains the following safe harbor: I think you need to look at the timing of the amendment. In other words, if they amended the plan 1 years ago to do this without granting past service, would any NHCEs have benefited? I would tread lightly and let the attorney take the risk for making the call.

If you didn't credit past service and the AB at the BOY was $0, without technical corrections, your min=max.

I went through the process a few years ago and didn't find a whole lot of guidance. They are basically trading one liability that they have some control over (plan termination), for another that they don't (withdrawal). In our case the multi was well funded and took the assets & liabilities at face so in essance the ER transfered the PT shortfall to the multi. Then a few years later their w/drawal liability began to grow, but it is still less than what it was. The multi wouldn't give them a seat at the table so they are now feeling pretty helpless as the liability grows. It can work, just make sure everyone understands the differences in the benefit formulas and that the employer understands how w/drawal liability works so they don't get surprised on the back end if they end up withdrawing.

SOA - yield curve Click on Pension Discount Curve and Liability Index and it will "pop-up" an Excel table. (Make sure your pop-up blocker is disabled.)

I think the J&75 can be what ever you define it to be as long as it is the most valuable form of payment (I guess equal or greater to the value to the J&50?) You will still need to demonstrate the relative value of the option using some reasonable table in order to comply with the relative value regulations. If it isn't equal in value to the J&50, it probably isn't a valid QOSA.

Did it give any references?

If Corbel says it is ok, why don't you ask them for proof. I recently went though a fairly detailed arguement with another large document provider and finally got them to agree that their late retirement provisions were illegal. I think you know 10X what most IRS document reviewers know. I think the "big boys" just get rubber stamped or they are able to talk the agents into accepting something that isn't really kosher. I would be interested if you ultimately conclude you can have a last day rule in a cash balance plan.

My understanding was that a cash balance plan cannot have a last day rule. I think this would violate the ratable accrual rules since in essence the benefit isn't accrued until the last minute of the last day of the year...I'm pretty sure this is problem. Benefits need to accrue ratably over the year. All or nothing is ok, as long as it doesn't require more than 1000 hours. I think the "last day rule" could cause you to fail this requirement. Form CCH:

none other than my own. We are issuing the "old" notice for the 2007 plan year (issued during 2008).

You guys/gals look at the yield curve lately? short term 6.5%+, mid term 8%+, longterm 7.25%. With the market tanking and the 430 segment rates lagging behind (5.09, 6.16, 6.58) it would make using the full unaveraged yield curve very tempting. Could save lots of $$ in contributions... but you would be stuck with it for a period. Then again, you could get burnt on the other end as well. Am I thinking correctly?

I think this discussion is just going around in circles. JBones - could you give a specific example on which we can comment. In general, a cash balance plan is a defined benefit plan and the plan document must contain language regarding how the cash balance account is converted into an annuity. This annuity is the basis for your non-discrimination testing. You don't "normalize" the cash balance account into an annuity like you would in a DC plan. "but this matches the results that I have gotten from several discrimination software systems." Do I really need to say it? Software generally does what you tell it, most software systems give you plenty of rope to hang yourself.

You are correct that the restriction lives on, however I don't think we have any guidance. I'm thinking that 110% of the funding target is the only logical choice. Any other ideas out there?