maximum hypothetic balance in cash balance plan

[Guest Deflector]

I have a takeover end of year cash balance plan with a maximum formula for an owner in his low 40s. We are doing the first year of the plan. The owner's contribution credit based on the plan formula is $90,000, however, his maximum 415 limit for his age is $75,000. What would his maximum hypothetical account balance be?

Is his hypothetical account balance limited to his 415 maximum,

or

can his hypothetical account balance be more than his 415 limit (except that we could not pay out more than the 415 limit upon distribution)?

[david rigby]

Just my opinion,

IRS rule number one: thou shalt follow the terms of thy plan document.

IRS rule number two: thou shalt not violate IRC 415.

[Blinky the 3-eyed Fish]

My vote is the latter assuming the document doesn't have language limiting the cash balance.

[SoCalActuary]

You cannot deduct funding for benefits in excess of 415.

You cannot payout benefits in excess of 415 without disqualification.

However, you can have a benefit formula that produces a benefit in excess of 415, like say: 10% pay x all years service.

Cash balance is no different. It's just a formula for determining benefits in a DB plan.

[mwyatt]

Remember too that this hypothetical balance could be infinity; doesn't mean that 1) you could pay it out, or 2) that you can fund for it, but you can show it on the participant's statement. Of course, he might be curious as to when he looks at the actual dollars going in (Target Normal Cost) why there is such a discrepancy, and even more curious when he terminates and he's getting a fraction of what he was led to believe was in his hypothetical account.

Thou shalt not fund for a benefit in excess of the 415 limit.

[Guest Deflector]

Thank you for all your responses.

[tymesup]

My understanding of the 415 regs is that benefits are limited for distribution (as before) and now for accrual, as well.

[SoCalActuary]

My understanding of the 415 regs is that benefits are limited for distribution (as before) and now for accrual, as well.

That's a no-brainer. They always were.