Freezing cash balance plan - can the interest credit be frozen too?

[JDuns]

When freezing a cash balance plan, can the interest credit be frozen as well?

Given that the IRS' position is that the future interest is part of each year's benefit accrual, can that future interest be eliminated in a plan freeze or must the plan be terminated to cut off the interest credits.

[Mike Preston]

My understanding is that reducing future interest credits is a 411d6 violation.

[MGB]

"Given that the IRS' position is that the future interest is part of each year's benefit accrual..."

Not sure where you got this from. They have always stated the opposite. However, in the proposed 411(b)(1)(H) regulations last year they acknowledged that there could be two types of interest. One that is already in the accrued benefit (and you would get if you became a terminated vested participant) and one that is in excess of that amount. Anything in excess would be part of the accrual each year, as you state.

It depends on your plan document. If the conversion from the account balance into an annuity at normal retirement age includes an interest projection, or if there is interest credited while a terminated vested participant, then freezing that interest would be a 411(d)(6) violation. But, an interest credit in excess of these two could be frozen because it is part of future accruals.

[Gary]

The accrued benefit would be calculated at the time of the freeze. It should include the account bal projected to normal ret and the normal ret bal converted to an annuity. An exception might be if the accrued benefit is not defined as an annuity payable at normal ret.