Cash balance plan termination

[Guest Ron Sevcik]

We are going through our first termination of a cash balance plan. The plan is a calendar year plan that is terminating on July 31, 2008. We are calculating a contribution based on the salaries through July 31st. The question I have concerns the interest credits. For example, assume that distributions will be done on April 1, 2009. My opinion is that the interest credits continue until the actual date of distribution and thus the final contribution amount would not be determined until April 1st. The other option would be to determine acount balances with interest credits at July 31, 2008, make the contribution based on the July 31 asset value, and then the account balances would be adjusted with actual gains and losses until April 1st. Since this is a defined benefit plan, I don't think this second option is correct, but I just wanted to see what ideas other people have.

Thanks.

[Blinky the 3-eyed Fish]

You better have a document that agrees and a determination letter to take the second approach. The first approach is probably what your document says.

I am assuming you are contributing an amount to make the plan whole. Go forth and smite those second opinionites.

[John Feldt ERPA CPC QPA]

Just fyi, you are probably aware that the interest crediting rate changes upon plan termination of a cash balance plan under the PPA rules. I believe it switches to some average rate from the previous years and stays fixed until everyone is paid.

[Blinky the 3-eyed Fish]

That is correct if the interest credit is based on a variable rate.