Cash balance general confusion

[Guest saeissler]

I have read through the threads and thank all of you for lots of good stuff! However I have a few remaining questions about general testing cash balance plans.

Are the following the basic permissible methods to general test a cash balance plan:

On a benefits basis - Take the current allocation and project it to NRD using the interest credits defined in the plan document. Then convert the projected balance at NRD to a life annuity using the actuarial equivalence definition in the plan document. Divide the resulting benefit by the testing compensation to get the EBAR.

On a contributions basis - the safe harbor of 1.401(a)(4)-8©(3) - Take the current allocation and project it to NRD using the interest credits defined in the plan document. Then get the present value of this, discounting back to the current age, with standard interest and standard mortality. Divide this present value by testing compensation to get the equivalent allocation for testing.

[ak2ary]

In testing on a benefits basis you must test both the normal and the most valuable accrual rates. Assuming that you have a uniform normal retirement age, for determining the normal accrual rate you would determine the increase in the benefit by projecting to NRA with the plans interest credit rate and convert to a benefit using the plan's actuarial equivalence assumptions.

In determining the most valuable benefit , for a pure cash balance plan, using annual testing, with no early retirement subsidies, you would determine the increase in the benefit by projecting to NRA with a standard interest rate (7.5 to 8.5%) and convert to a benefit using a standard interest rate and standard mortality table. This assumes that the plan's interest credit rate is less than a standard rate (i.e. less than 7.5%), if the plans interest credit rate is greater than 7.5%, the most valuable benefit will turn out to be the normal benefit.

In situations where the plan does not have a uniform NRA, you will need to use a a testing age of 65. For determining the Normal rate you project to NRA with the plan's interest credit rate and from NRA to testing age using a standard rate.

Having said all this, if you are not used to general testing defined benefit plans, I would only do it under the supervision of someone with a good deal of experience doing it.

[Guest saeissler]

Thanks for your response. It appears that you agree with what I said but have added the method for calculating the most valuable accrual rate. I would think that the calculation method for the most valuable accrual rate would be the same as for the normal accrual rate, but just testing the QJSA form of benefit. I have looked at the regs and don't see where you are coming up with your process, specifically, using the standard interest and mortality assumptions?