Cash Balance - Past Service Benefits

[carrots]

A new cash balance plan is effective 1/1/2009 with a contribution credit of 10% of compensation.

Is there any problem with providing all participants at 1/1/2009 with an immediate past service benefit of 10% of 2008 compensation?

Would this result in the plan having a Funding Target at 1/1/2009, allowing for a range of contributions for 2009?

[JAY21]

Yes, you can do that and yes you would get the funding cushion on the funding target. The client would probably want to fund the max (using the funding cushion amount) as otherwise your AFTAPs will be fairly low in first few years and could restrict accruals/lump sums. With past service credit if plan is PBGC covered you'd might have variable rate premiums depending on the vested benefit vs. assets. You might exclude service earned pre-plan inception for vesting if client is so inclined and if no predecessor plan terminated in prior 5 year period, this would help reduce PBGC variable rate premiums, if any.

[FAPInJax]

There may be an issue in violating the 133 1/3 rule. This is because there is no actual accrual (target normal cost) in the year. The second year then has a full accrual.

[JAY21]

Why is there no accrual in the first year ? Isn't there BOTH a curent accrual and a past service accrual or am I reading the original post wrong.