Cash-Balance Formulas

[JAY21]

Doctor group wants 3 tiered CB formula (10k, 25k, 50k) where each doctor will initially choose which formula they want to be under and plan doc will be drafted accordingly. Only Doctors will be in the plan as plan easily passes 401(a)(26) as they're emergency room docs with few staff ee's. Plan is aggregated with existing PS plan using permissive aggregation, staff ee's under the PS benefit under rich formula 16% formula (this level of contribution has more to do with their historical benefits package than discrimination testing though it is sufficient to pass 401(a)(4) on an aggregated basis).

Anyone have any problem with naming names in the CB plan doc in a case like this. Maybe something like:

Group A will get 10k and consists of: Dr. A, Dr. B, Dr. C

Group B will get 25k and consists of: Dr. D., E., F.

Group C will get 50k and consits of: Dr. G, H, I, etc...

I assume I can use a flat dollar amount instead if % of compensation, so I guess I'm mostly wanting to check on using names instead of job classifications. Do I need to pass the 401(a)(4) using the 70% test instead of ABPT ?

[ak2ary]

That should be fine. Remeber that each Doc can review the plan doc and so each will know what the other is getting. I assume that won't be a problem.

The only prohibition against naming names is with respect to eligibility to participate in a plan that uses the Avg Benefits Test to meet 410(b) for the plan as a whole. Here your eligible group is all doctors which is a reasonable business classification IMHO. It is not a problem to use names to delineate participant benefits.

Only caution would be if one of the "groups of names" has such a low pay credit that they are deemed to not benefit. The arguement would then be that the class determination is an eligibility determination. Benefiting here would be under 410(b) which doesn't have a meaningful benefit requirement. That having been said, if the pay credit was zero for a group that would be a problem and maybe if the pay credit was $0.25, it would also be a problem.

In that case you most likely wouldn't cover a reasonable classification of employees and would need to use the Ratio Pct Test as the plan's main 410(b) pass.

[JAY21]

Good input. I do have a couple of Docs that don't want to participate in the plan so a $0 formula for them may cause the problems you suggest (I'll review what it would take to pass at the 70% level).

[AndyH]

Tom, would you agree (I hope so since I got it from your slide show I think) that if the docs have the same job description, age, and service that this (different contribution levels) would not fly under PPA?

That should be fine. Remeber that each Doc can review the plan doc and so each will know what the other is getting. I assume that won't be a problem.

The only prohibition against naming names is with respect to eligibility to participate in a plan that uses the Avg Benefits Test to meet 410(b) for the plan as a whole. Here your eligible group is all doctors which is a reasonable business classification IMHO. It is not a problem to use names to delineate participant benefits.

Only caution would be if one of the "groups of names" has such a low pay credit that they are deemed to not benefit. The arguement would then be that the class determination is an eligibility determination. Benefiting here would be under 410(b) which doesn't have a meaningful benefit requirement. That having been said, if the pay credit was zero for a group that would be a problem and maybe if the pay credit was $0.25, it would also be a problem.

In that case you most likely wouldn't cover a reasonable classification of employees and would need to use the Ratio Pct Test as the plan's main 410(b) pass.

[Tom Poje]

per my notes from the Western Benefits Conference topic that I sat through

(due to PPA)

Hybrid plans are not age-discriminatory if:

a participants accrued benefit determined under the terms of the plan would be equal to the accrued benefit of any SIMILARLY SITUATED younger individual (in every respect):

* period of service

* compensation

* position

* Date of Hire

* Work History

* other relevant factore (but no one knows how to apply that)

thus the speaker cautioned against using names since 'names' was not on the list.

[wsp]

So then do you assign them a position within the medical group? And one gets promoted or demoted if their benefit level changes? Thus the position remains the same but the person who fills that position might change. And to account for new hires due to expansion each group would have positions that are currently unfilled?

[JAY21]

So any other ideas on how to use a tiered CB plan formula or are we basically stuck with a one-size fits all formula if we want to use a CB plan ?

[JAY21]

So I guess because this is an "age discrimination issue vs. an HCE/NHCE discrimination issue it won't matter that all participants are HCEs.....it's still an issue I guess.

Seems funny that you could do this with a traditional DB plan (tiered formulas) by defining an accrued benefit with a present value equal to the desired PVAB, but not CB. But maybe that's the PPA 06 trade-off along with the 3-year vesting. I'm hoping to use CB plans more but there seems to still be some undesireable trade-offs (resticted plan design, 3-year vesting, no Volume Submitter plans, higher User Fee on FDL, etc....).

[AndyH]

So any other ideas on how to use a tiered CB plan formula or are we basically stuck with a one-size fits all formula if we want to use a CB plan ?

I don't think anybody is saying that you can't have different rates for different groups of people; we're cautioning that the groups need to be distinct-use job classes or years of service or both for example. I just would not get as aggressive as with cross tested dc plans. Unlike a db, dc plans are not by nature focused on age, so age discrimination concerns are reversed-the younger people get the short stick and that seems to be a lesser evil.

It seems to me that the magic to cb plans is that "natural" db cost levels can be cut back for some. And those are the older people.

Just one opinion.

[ak2ary]

I don't think we have anything that remotely resembles an answer to this. In fact the IRS has been asked if similarly situated includes "name" and have begged off the question saying that they have only begun to work on cash balance guidance and that this is not on their list. It would be ridiculous finding that all plans other than hybrid db's can have different formulas for different peeps...by name...and that clearly is not what is intended.

I would argue that the benefit formula under which they are covered is clearly an "other relevant factor".

[Mike Preston]

Stay tuned. Rumor has it that we will be receiving partial and perhaps temporary guidance in droves over the next 8 weeks. I think this issue is addressed. My guess is that we will not like what is written. "riduculous"? Won't be the first time.

It appears that there will be a great need for comment letters in response to the many issues that will be thrown at us.

Please, please, please volunteer with your respective organizations (ASPPA, COPA, AAA, etc.) to help with this effort. It is likely to be overwhelming.

[Blinky the 3-eyed Fish]

I haven't seen any guidance on the name issue (but I haven't really looked). Is there anything?

[ak2ary]

Not yet...last I heard was end of October for Cash Balance guidance... but its political and you never know