Interest crediting on a Cash Balance Plan account

[Guest meggie]

The interest crediting rate is based on a treasury rate (varies by month) with a minimum of 5%/yr. The plan is frozen in that there are no future benefit credits, just interest credits. I have 2 questions:

1. Is the treasury rate as defined in the plan, a protected benefit for as long as it is an available rate as reported by the federal reserve? In other words, we can't ever eliminate this rate for future crediting because it impacts the accrued benefit??

2. If the federal reserve stops publishing the rate, then does it become easier to amend the plan to something else (or eliminate all together and retain the fixed 5% rate)?. However, since this impacts the determination of the accrued benefit, I would expect a 204h notice would be required.

Thanks

[MGB]

Any change would not have 204(h) applicability. The rates in the plan are already part of the accrued benefit. Changing the rate could not reduce the accrued benefit. 204(h) only applies when you change the rate of future benefit accrual. The future benefit accrual is already zero (the interest credits are not future benefit accrual).

Personal opinion is that the 30-year rate will never go away so this is not an issue.

If it does, then you have a plan provision that makes no sense going forward. That needs to be fixed. However, at that point in time, the participants have an accrued benefit in annuity form that can be calculated. You cannot take that away. Either you would need to freeze the calculation of the accrued benefit (in annuity form) or come up with a new crediting rate that does not produce something less than what they already accrued.

[Guest meggie]

Thank you MGB.

Based on your response, I now agree no 204h notice is required.

But the other major concern is that per Notice 96-8, the method of projecting must "preclude employer discretion" and must not create a forfeiture of benefit. Based on that statement, is the plan locked into the variable rate until it is no longer a published rate? or is the way around it to create a minimum ABN at date of change,based on current rate projections to NRA. Then go forward with the amended rates? [this is comparable to your response if the rate no longer is published.]

Thanks