Cash balance whipsaw

[Gary]

A cash balance plan pays the account balance as a lump sum dist. Of course pension law requires the lump sum to be at least the pv of normal ret accd ben.

The plan uses the 30 yr for interest vredits and the 30 yr (as of a different month) to determine lump sums.

If the 30 yr for int credits is greater than 30 yr for lump sums, then could or should minimum lump sum be based on account bal proj to ret by int credit rate and then discounted by lower lump sum int, thus resulting in a lump sum greater than account bal?

In other words no pre ret mortality. Again the plan does not give any specifics for the calc of lump sum other than to say it is the account bal.

[IRC401]

Remember that I am responding without having seen the plan document. In general, the plan administrator should project the account balnce forward using the plan interest rate and discount it back using the "applicable" rate, which means that the present vlaue of the accrued benefit could be significantly more than the cash balance.

There is case law supporting this result.