Top Heavy Cash Balance Plan

[Guest pension222]

How does one calculate the participant's PVAB in a cash balance plan in order to determine if the plan is top heavy?

I could see projecting the account balance to NRA, converting it to an annuity, and then determining a PVAB based on this annuity.

I can also envision just using the current account balances, since once we go through the steps of projecting, annuitizing, and calculating a discounted single sum, we are pretty much back were we started.

Is there any formal guidance on this topic?

Thanks.

[Blinky the 3-eyed Fish]

Most cash balance plans that I have seen define the actuarial equivalents to be the 417(e) interest rate and mortality. If that is the case, then barring a greater TH minimum, the cash balance is the PVAB.

Now if the AE are something different, then you are converting the cash balance to an annuity and then getting the PVAB from that.

[Guest pension222]

Q&A T-26 of the 416 regulations indicate that there are no specific prescribed actuarial assumptions that must be used to determine the PVAB for top heavy determination purposes. In fact it indicates that the assumptions do not have to be the same as the plan's actuarial equivalence factors so I'm not sure that actuarial equivalence factors or those under 417(e) would come into play here.

[Blinky the 3-eyed Fish]

Yes, but the assumptions must be reasonable. To deviate from what I posted is to invite the scrutiny that the assumptions are not reasonable. And I would certainly call into question using a different interest rate and/or mortality table that would cause the PVAB to differ from your cash balance, when it otherwise wouldn't differ.

[Guest pension222]

So we are back to just using the cash balance accounts.

I have always used the plan's actuarial equivalence factors to determine PVAB for top heavy purposes. It is certainly more consistent than using the 417(e) factors which change from year to year.

So if we take the cash balance account, project using AE interest (and mortality if applicable), convert to an annuity using AE mortality, convert back to a single sum using AE mortality, and then discount using AE interest (and mortality if applicable), we are back to where we started.

This makes sense to me, I was just wondering if this is actually how it is done in practice.