Maximum Contribution to a Cash Balance Plan ?

[ERISAnut]

Assuming it is 2005 and the 417(e) rate is 5.5%, how would you calculate the maximum contribution to a Cash Balance Plan for a 50 year old employee?

I am thinking GAR '94 @ 5.5% would come into play for a reduction between age 62 and 50, but nothing jives.

Does the years of participation come into play as well since the 415(b) dollar limit is reduced for years of participation less than 10? Or, do we assume there will be at least 10 years of participation and leave it alone.

For salary, let's assume the individual makes over $200,000 even though salary doesn't come into play for the actuarial reduction below 62 and years of service is more than 10.

Any help would be greatly appreciated.

[SoCalActuary]

Your cash balance formula is simply a way to get the plan's benefit.

In a traditional DB plan, you would figure the maximum annuity benefit at retirement age.

The maximum lump sum in 2004-5 would be limited to 5.5% and the required mortality table (94 GAR)

The cash balance plan must comply with the same rules. Project the CB balance to NRD, and convert

to an annuity using the document assumptions. Then limit the annuity to the maximum allowable 415 limit.

Convert the limited annuity to an equivalent maximum lump sum.

Now, reverse these last steps to go from the maximum benefit at NRD to the maximum cash balance account

today. If you plan to fund for anything above that amount, you would be exceeding allowable funding rules.

Note however, that maximum lump sum for 415 purposes may be less than your hypothetical cash balance

account. This is not a problem unless you fund for an excessive benefit or you payout an excessive benefit.

[ERISAnut]

Okay,

I understand everything you said. It actually makes since.

My disconnect is that assuming a maximum 2005 payout of $170,000 per year (divided by 12 for monthly), and multiplying that by the GAM '83 APR @ 5 % (assuming that 5% is greater than the plans assumed rate) should give me the 415 lump sum maximum at ages 62 - 65.

From there I would take the GAR '94 APR @ 5.5% for a 62 year old and divide that by the same for a 50 year old. Once I multiply that to the Lump Sum calculated above, shouldn't that provide the figure?

The statement that the Hypothetical account balance can actually exceed the 415 limit helps because my next question was going to pertain to what would happen in year one where the participant's one year of participant yields a 415 limit of only $17,000. <Thank's for clearing that up.

But back to my problem: I am trying to see how the calculations would derive a Maximum CB allocation of $69,353 for a 40 year old and a $72,821 allocation to a 41 year old. I cannot balance to these amounts under my methodology above.

Been tyring to figure this out for months; just can't do it. What am I missing?