Cash-Balance Stmt/415 Impact

[JAY21]

If I have a cash-balance plan primarily designed to max benefits for owners at their 415 limits, although there will eventually be a couple of staff employees, what should the individual benefit statements reflect for contribution credits to owners where the contribution credits result in a benefit accrual for the year that is restricted by IRC 415 ? Since I cannot fund for more than the 415 limit, or distribute more, would the benefit statement reflect the full contribution credit per the plan document or a lesser amount equal to the contribution credit that is equivalent to the 415 accrual for the year ? Not sure if this is a technical issue or more a communication issue. I hate to show a higher theoretical higher account balance than can be immediately distributed, but maybe that's what I have to do with some appropriate caveat at the bottom of the statement. Any thoughts/opinions/preferences ?

[Blinky the 3-eyed Fish]

I see this as both a document and communications issue potentally.

Document - does your document even allow for allocations that put a theoretical balance above the 415 limit? It is possible that the allocations need to be capped so that the balance never exceeds the limit.

Communications - a bit of a pickle if the document does not limit the contribution credits. If you don't show the full cash balance then it is possible that your EOY balance from the prior year will not equal the BOY balance from the current year simply because of a COLA increase. I suppose you could flow that change through in "earnings", but I don't like it because it's not accurate. Also, are you really computing the immediate lump sum 415 limit for each person each year on a termination basis? That seems like a lot of work. But as long as you are doing that, why not show the cash balance and caveat with the current LS payout limit? That seems to cover your bases.

[SoCalActuary]

My approach is to recognize that the cash balance account must follow the terms of the document, which might allow it to exceed the then current maximum lump sum 415 benefit. However, for funding I limit the benefit to the 415, and for distributions I limit the benefit to the 415.

Cash balance is simply a formula for determining a benefit. 415 is the last step in determining if the benefit is allowable.

The statement you give should show the theoretical cash balance with the warning that it would exceed the then current lump sum allowable. Often, by the time the statement is published, they have had a cola 415 increase and an added year of accrual, so the warning is obsolete anyway. Unfortunately, this is not 100% reliable, so the caution is important.

[JAY21]

Thanks to both of your for your input. Good ideas that I'll put to use.