Fixed Factors to Convert Cash Balance Account Balance to Annuity

[Guest CRC02]

A cash balance plan uses fixed factors (set forth in the plan on a chart and determined based on the age of the participant) to convert a participant's account balance to a life annuity. The account balance is divided by the fixed factor, the result of which is the participant's annual benefit. Has this method of calculating annuities been an issue in any of the cash balance lawsuits? Does anyone see any problems with this method of determining annuities?

[MGB]

The lawsuits on age discrimination apply no matter what your annuity conversion approach is. The lawsuits on whipsaw may or may not apply, depending on how the conversion factors interact with the crediting rate.

Also, you may have backloading issues (a subject of some lawsuits) if the fixed conversion rates are not congruent with the crediting rate.