cash balance conversion

[Guest MC2]

Is it possible to convert a cash balance plan to a 401(k) plan?

[SoCalActuary]

No.

A defined benefit plan must be terminated with all its attendant duties. Cash balance is just a formula.

[Guest MC2]

That's what I thought, I just wanted to make sure that I wasn't missing anything. Thanks so much!

[Blinky the 3-eyed Fish]

Actually I believe the letter of the law allows you to convert a DB into a DC plan. However, with the 411(d)(6) issue of perserving DB benefits in a DC environment, it makes absolutely no sense. It is much better to terminate the DB and start a new DC plan.

[david rigby]

Blinky is correct about the "letter of the law". However, that does not mean it is better to terminate; it might be better to freeze the DB plan; we don't know all the facts. It is usually best to have all facts on the table when making plan design decisions.

[SoCalActuary]

If the intent is to start new accruals only under the 401k plan, then a DB freeze is fine. Then you get to charge for (pay for) two plans.

If the intent is to migrate the funds from a guaranteed obligation of the employer subject to funding rules,

then termination is effectively the intermediate step. The funds can then be transferred into the DC plan.