Self-Directed Cash Balance Plans

[Guest erichiii]

Is anybody doing these or seeing any demand in the marketplace for them?

Thanks,

Elmer Rich

312-553-2117

[SoCalActuary]

It can be done if you do not have separate asset pools in violation of a26.

The separately directed values must be determined in advance of the year, using a definitely determined index unrelated to the actual performance of the plan trust.

I administer one, but it's not easy.

The potential misunderstandings by participants are many. The plan is still subject to the normal actuarial issues, plus the discrimination issues. You must have a plan for testing benefits when one particular index causes a decrease in plan benefits.

[Blinky the 3-eyed Fish]

You must have a plan for testing benefits when one particular index causes a decrease in plan benefits.

If this were to happen, how can this satisfy 411(d)(6)?

[SoCalActuary]

I don't let it in my plan designs. Talk with the big-plan people who do. Sorry I can't help!

[Guest Harry O]

Section 411(d)(6) only applies if the plan is amended to reduce benefits. A reduction by operation of the formula is arguably not a cutback. The IRS may disagree and has tried to argue that reductions due solely to increases in covered compensation or PIA amounts is a prohibited cutback. This is a controversial position and reasonable people will differ . . .

[Blinky the 3-eyed Fish]

Good point on that amendment thingy.

[mbozek]

If the CB plan was a conversion from a traditional DB plan then the accrued benefit can never be less then the benefit on the day the CB plan was effective. The lump sum benefit can never be greater the the maximum 415 benefit as discounted to the participant's current age (unless the NRA is the fifth anniversay of the commencement of participation).

[Guest Harry O]

What does the definition of the plan's normal retirement age have to do with calculating the maximum benefit payable under section 415(b)? I thought that the 415 limit for someone starting payment at age 45, for example, is determined by reducing the $165,000 limit down to age 45 from age 62 and then making any appropriate adjustments for optional forms of benefit (such as a lump sum). Where does the plan's definition of NRA come into play?

My understanding is that the 5-year normal retirement date is used to get around section 411 problems and has no impact on section 415.

[Blinky the 3-eyed Fish]

Harry, you understand correctly. The NRA would come into plan in funding a plan, but not in the ultimate distribution to a participant.

Mbozek, your first statement is correct. Of course the conversion to a CB plan is an amendment that brings in 411(d)(6), so the cutback issue is clear.