Cash Balance - IRC 430(h)(4)(B) leeway

[carrots]

IRC 430(h)(4):

"For purposes of determining any present value - - - - , there shall be taken into account-

(A) - - - ,

(B) any difference in the present value of such future benefit payments resulting from the use of actuarial assumptions, - - - , which are different from those specified in this subsection."

For a Cash Balance Plan, with

i) the accrued benefit equal to the Hypothetical Account Balance, and

ii) 100% probability of the benefit being taken as a lump sum,

I want to use actuarial assumptions that result in the TNC being equal to the Contribution Credits, and the FT being equal to the Hypothetical Account Balance.

Does IRC 430(h)(4)(B) provide leeway to do that?

What do the words that I left out mean: "in determining benefit payments in any such optional form of benefits" - particularly where the benefit is the Hypothetical Account Balance?

[flosfur]

IRC 430(h)(4):

"For purposes of determining any present value - - - - , there shall be taken into account-

(A) - - - ,

(B) any difference in the present value of such future benefit payments resulting from the use of actuarial assumptions, - - - , which are different from those specified in this subsection."

For a Cash Balance Plan, with

i) the accrued benefit equal to the Hypothetical Account Balance, and

ii) 100% probability of the benefit being taken as a lump sum,

I want to use actuarial assumptions that result in the TNC being equal to the Contribution Credits, and the FT being equal to the Hypothetical Account Balance.

Does IRC 430(h)(4)(B) provide leeway to do that?

What do the words that I left out mean: "in determining benefit payments in any such optional form of benefits" - particularly where the benefit is the Hypothetical Account Balance?

Per the proposed regs issued December 2007, no leeway - see example 9 in S1.430-1(f)(7).

[JAY21]

I think you're stuck with the funding whipsaw (TNC not equal to sum of pay credits due to segment rate discounting being different than interest crediting on "accounts"). The only way I can see TNC=Pay Credit is IF you chose to use the 3rd segment rate as your theoretical interest credit under the terms of the plan doc (a safe-harbor interest credit under recent regs), AND tied it to the same month used for the funding segment rates, AND EVERYONE just happened to be young enough that they were all in the 3rd segment rate category for funding purposes. Unless this was a 1 person plan that wouldn't be very likely to occur.

[carrots]

Thanks, flosfur.

After looking at proposed reg 1.430(d)-1(f)(7) Example 9, is it possible to project the Hypothetical Account Balance (HAB) and the Contribution Credit (CC) to NRD using the same interest rates that are used to subsequently discount back to the valuation date?

Assuming no mortality decrement, that would seem to provide that TNC = CC, and FT =HAB.

What restrictions are there on the choice of interest rates in projecting values to NRD?

[carrots]

I think you're stuck with the funding whipsaw (TNC not equal to sum of pay credits due to segment rate discounting being different than interest crediting on "accounts"). The only way I can see TNC=Pay Credit is IF you chose to use the 3rd segment rate as your theoretical interest credit under the terms of the plan doc (a safe-harbor interest credit under recent regs), AND tied it to the same month used for the funding segment rates, AND EVERYONE just happened to be young enough that they were all in the 3rd segment rate category for funding purposes. Unless this was a 1 person plan that wouldn't be very likely to occur.

Do we have to use a single interest rate to project to NRD, or could we use the segment rates?

[Blinky the 3-eyed Fish]

My take on this is that the projected interest credit is only flexible if you don't have a hard-coded interest crediting rate in the document. So if you have something like, the interest crediting rate is the 417(e) rate, then you have some flexibility to make a reasonable assumption to the future interst crediting rate. That old reasonable actuarial standard is what applies.