Accruing the maximum 415 benefit (1/10)

[John Feldt ERPA CPC QPA]

Suppose a new DB plan has a formula where the accrual will provide 1/10 of 415 dollar limit for one of the employees (the maximum accrual in year #1). Suppose the plan starts 1-1-2008.

When determining the maximum allowed for funding purposes, is that employee's maximum cushion actually limited to the 415 limit at the end of that first year, thus not truly allowed fund (for that ee) the 50% cushion?

[AndyH]

It would be 150% of the accrued benefit liability, where the accrued benefit liability is limited by 415, so you could think of it as 15% of the dollar limit, if the dollar limit applies.

[mwyatt]

Think you're confusing funding w/ accrual. You could put in the 150%, but that doesn't mean that if he walked after year 1 that he would be entitled to extra lump sum.

[SoCalActuary]

Starting in 2008, the funding rules are different than the 2006-7 rules.

In 2008, you get to fund for 150% of the benefits earned at the beginning of the year, plus 100% of the new benefits earned during the year (or expected to be earned, for beginning of year valuations.)

So, in your example, the 150% funding applies to the first year only if you can say the 415 limit for the year was already accrued at the beginning of that year. I generally do not take that interpretation unless the benefit formula provided some past service credits.

[AndyH]

How would this work for a new Cash Balance plan? The plan's deduction limit would be 100% of EOY CL on a sex distinct basis (perhaps) which could be more or less than 100% on a plan-rate (unisex) basis?

Or does it depend upon the segments?

This seems weird.

[SoCalActuary]

On a new cash balance plan, the funding is the Target Normal Cost. This assumes that there is no initial Funding Target.