Lump Sum Calculation Under Cash Balance Plan

[LIBOR]

Annual interest credits under a frozen cash balance plan are based on Treasury +1, actuarial equivalence for a non lump sum benefit option is '83 GAM Unisex w/ 7%, and actuarial equivalence for the lump sum option is '83 GAM Unisex w/ interest at the 30 year Treasury rate.

When a participant terminates & elects a lump sum, the account balance is brought forward with Treasury +1; if the 30 year Treasury is >= 7%, he gets his current balance ; if it's < he gets his balance times A/B, where A= a life annuity rate at current age using the lump sum basis & B= a life annuity rate at current age using the non lump sum basis -

A/B is greater than 1 .

Since it's not the typical "whip saw" calculation, I was wondering if anyone has seen this particular methodology for the calculation of lump sums in a cash balance plan ???

[Gary]

Never saw it.

It seems to me that the issues in detemining a lump sum under a cash balance plan have to do with:

1. A comparison between the 30 year rate and the interest crediting rate.

2. the age 65 (normal ret) annuity conversion factor to convert balance to annuity and the age 65 present value factor under the lump sum basis.

For eg. if int credit rate is > than 30 yr rate, then the pvab is probably greater than the account balance

If the lump sum age 65 annuity factor is greater than the annuity conversion factor then the pvab is potentially greater than the account bal.

Bottom line the issue is, is the pvab greater than account. If it is then that would be the lump sum. Of course the plan provisions may involve other issues too.