Nondiscrimination testing of Cash Balance plans

[Guest TedMunice]

Does the recently enacted Pension Protection Act give any sort of safe harbor relief to cash balance plans with respect to non discrimination testing? Or do we still have to go through the 401(a)(4) testing exercise?

[Guest ebg2310]

Does the recently enacted Pension Protection Act give any sort of safe harbor relief to cash balance plans with respect to non discrimination testing? Or do we still have to go through the 401(a)(4) testing exercise?

No, but it makes it a lot easier to pass when you combine CB with a 401(k)/6% max PS plan. PPA allows us to ignore the 25% 404(a)(7) limit normally imposed on overlapping DB/DC combo as long as the PS does not exceed 6% of pay.

[SoCalActuary]

See Treas. Reg. §1.401(a)(4)-8©(3). It defines the cash balance safe harbor rules.

These were not removed by PPA 06.

If your cash balance plan has a formula that looks like a safe-harbor DC plan for 401(a)(4),

and you use one of the published interest rates, then you have met the most important conditions

for a safe harbor cash balance plan.

Sometimes, these are also the best plan design.