Cash Balance Interest Credit Timing

[Guest BRich]

A cash balance plan credits interest on 12-31 of each calendar year.

The credit is equal to a safe-harbor (for age discrimination rules) rate x the hypothetical account balance on 12-31 of the prior year.

The interest crediting rules say that interest must be credited at least annually. However, under the above noted approach, new participants won't get an interest credit on their first 12-31 because they don't have an account balance that existed on the piror 12-31. This means that a participant who joins on a given January 1, won't get an interest credit until nearly two years later.

I can't find any guidance (other than what's in the proposed regs) on this, but it seems that we have to credit interest at some point during the participant's first 12 months of service.

Any thoughts?

[AndyH]

What are you proposing to credit interest on for someone who "joins" 1/1? When is the first pay credit considered allocated?

If I become eligible for my employer's PS/K plan on 1/1, the first profit sharing allocation is not allocated/credited until 12/31, so why should I get interest?

[John Feldt ERPA CPC QPA]

The interest crediting rules say that interest must be credited at least annually.

Provide a credit of $0.00, which is their prior balance x the crediting rate, and post that zero to their account for that first year. The same would apply to someone who quit, was paid out, then came back the next year.