cash balance transfer to 401(k)

[Guest anne1]

I don't need a real complicated answer to this just a down and dirty response. What are the possibilities (if any) of transferring a cash balance plan to a 401(k) plan? Can it even be done?

[Effen]

Define "transfer".

You can terminate the cash balance and allow the participants to rollover their distribution to the 401(k) (or take the cash), but I don't believe you can just transfer the balances without a distributable event.

[SoCalActuary]

Change the words from "cash balance" to "traditional defined benefit", and you would see that the answer

is exactly as Effen suggested. You need a distributable event first.

Remember that cash balance is just a defined benefit plan with an odd benefit formula.

[Effen]

SoCal, I recently ran across 1.411(d)-4 Q/A 3 which seems to imply that a transfer may be possible. I'm not changing my original opinion, but I'm struggling with this Regulation and how it fits into the argument. Q/A 3 seems to say that a transfer would be possible, as long as the benefits are preserved, but how can you guarantee they will be preserved in a DC plan?

[david rigby]

I'm not sure termination is required, if 414(l) is our guide. It does seem to require providing options (such as total distribution) to participants as if the plan terminated, even though the transaction may be a plan merger. (Several prior discussion threads on this topic.) The Q&A cited by Effen may also support this interpretation. As he states, it is difficult to determine how DB features are preserved in a DC plan. If so, why bother?

[SoCalActuary]

I will admit a simplifying assumption. A merger of plans involving a DB into a DC acts like a

plan termination in my way of thinking. This looks like a distributable event in many, but not all cases.

Once the db provisions are out of the picture, then the DC plan just had to guarantee the initial transfer of funds was at least equal to the benefits in the db plan. After that, no guarantees of investment return.

In fact, the only DB feature left in the DC plan would be the available forms of distribution.