cash balance and segment rates

[abanky]

I really don't know how to propose this question... but for 2008, will cb have to test based on the segment rates?

[ak2ary]

The general test?

[AndyH]

No, testing is based upon the "standard" interest and mortality factors contained in 1.401(a)(4) and the segmented rates are out of the "standard" range. Ha Ha.

[ak2ary]

Well, assuming the general test the normal accrual rate will be determined by projecting to NRA with the plan's interest credit rate (then to testing age if different with a standard rate)

The most valuable rate will be determined by calculating the QJSA benefit payable at current age (assuming interest credit is less than 7.5-8.5), normalizing it to a life annuity at testing age using a standard interest rate (7.5 to 8.5%)

Unless the plan's interest credit rate is somehow related to the segment rates, segment rates have nothing to do with testing

(Having said that some plans may try to approximate the effect of the yield curve for purposes of their interest credit rate to prevenet "funding whipsaw")

[abanky]

for cash balance plans you have to use the 7.5% to 8.5% range?

[ak2ary]

you have to use the plans interest credit rate to determine the normal accrual rate

you have to use a standard rate (7.5-8.5%) to determine the most valuable accrual rate

So you don't use the 7.5-8.5% to determine any plan benefits, but if youare running the general test, on a benefits basis, you have to use 7.5-8.5% to determine the MV accrual rates for testing

[abanky]

justed looked and we do use the 7.5% to 8.5% to determine the MVAR. I was worried for a minute.

[AndyH]

True, for a general tested CB plan alone.

But if you are doing the abbreviated general test in the a(4) regs wouldn't you be using a standard rate to create the allocation rate?

Ditto for 401(a)(26), at least that is how I have seen it done. (But now I'm wondering why).

And, if there is a DB/DC combo the standard rates would come into play for such things as the gateway.

[Mike Preston]

OK, I'll bite. What is the abbreviated test?

[AndyH]

I was referring to the "modified general test". I think the cite is 1.401(a)(4)-8©(3)(iii)©. I don't pretend to be fluent in it; I just know that it is there and there are multiple references to standard interest rates.