cash balance add-on plans

[Guest ctrapatsos]

hello

i have been seeing a lot about adding a cash balance plan to an existing 401(k) plan

i was just curious what the downside is to this when comparing to the option of adding a traditional defined benefit plan instead to the existing 401(k) plan

what are the pros and cons of the traditional db add-on over the cash balance add-on?

thank you

chris

[SoCalActuary]

Read the literature.

Ask your actuary.

[AndyH]

ctrapatsos,

I would encourage you to disregard the previous comment which I will refrain from otherwise characterizing. There's one in every crowd.

Anything new you might read relates to changes brought about by PPA, but the "add on" rules don't come into play until 2010 (if then).

Beyond that, some of the problems with cash balance plans (notably whipsaw and problematic investment restrictions) have been removed by PPA or will through followup regulations (hopefully).

You could follow up if you wish about cash balance versus regular db but the 401(k) element is not really relevant to either at this point. I would be skeptical that the 2010 rules will have much widespread appeal anyways.

[SoCalActuary]

I can see that I was mis-interpreted. In the interest of time, I gave you the correct, but very abbreviated, answer.

Adding a DB plan to a 401(k) plan is a great idea, starting in 2006. But they need to be separate plans until at least 2010.

Choosing a cash balance formula vs a traditional DB formula is the next decision. If you don't know the advantages of each type plan, then you should get help. Either start studying the differences, or work with someone who does both types of plan.

This forum could give you plenty of discussions about combined plan deduction rules, cb vs db formulas, the effects of PPA, etc. But a quick answer will not be much help. To do this well, you need to be prepared.