Cash Balance Merge Into 401(k)?

[Guest mrjones]

Can a cash balance plan can be merged into a 401(k), or would it have to be terminated with participants having the option to roll over?

If a merger is possible are there any unusual issues invovled?

[John Feldt ERPA CPC QPA]

I do not know of any means by which a true merger of the plans could occur, one big reason being that the cash balance plan is a defined benefit plan requiring actuarial cost calculations to determine minimum funding.

The assets of the 2 plans theoretically could be pooled together if accounted for properly and by using a master trust of some sort that allows the two plans to invest together, but if the 401(k) plan allows the participants to direct their investments, then pooling the 2 plans assets may not work well.

If the cash balance plan terminates and if the cash balance plan offers lump sum distributions and if the 401(k) plan accepts rollovers, then the distribution paperwork for the cash balance plan could be designed to make it easy to rollover the money to the 401(k) plan.

[Blinky the 3-eyed Fish]

The minimum funding is not the issue if the 401(k) is the surviving plan, much like it wasn't an issue when MP plans were merged. The main issue though is how you preserve benefits in a defined benefit plan when they are now in a DC account balance environment. What happens if the value of the assets goes down? I doubt your CB plan incorporated the new PPA rules with regard to allowable rates of return.

It is much easier to just terminate the CB instead of trying a merge.

[Guest mjb]

Mr J : what do you hope to accomplish with the conversion since the ee in the DB plan with a PV over 5k are guaranteed the right to an annuity benefit for the monthly accrued benefit at age 65 under the IRC and ERISA? They can elect to roll over the Lump sum to another plan but the DB plan still has to offer the right to take a guaranteed annuity benefits. Merger w/ 401k cannot take away right to guaranteed annuity benefit.

[ak2ary]

To take it a step further, the defined benefit nature of the benefit is a protected benefit under 411(d)(6). IT cannot be merged with a 401(k) plan unless the resulting plan is a 414(k) defined benefit plan with separate DC accounts. Of course this type of plan cannot have a 401(k) feature since it is a DB plan.

Sorry..no way to do it