change in cash balance allocation formula

[abanky]

Say an HCE was receiving an allocation of 50% of compensation per year, what would be the potential pitfalls (other than having to give more to the NHCEs) to raising the allocation to say 75% of compensation?

[mwyatt]

I'll add to this thread having reviewed a Rube Goldberg proposal (it works as long as none of the employees/family members have the nerve to change their employment status). The proposed plan in question works fine given that the owner's wife and 2 kids (questionable as to actual employment, but I digress) get nothing from the proposed combo DB/DC, coupled with a NHCE pool of 5 that have 4 of similar age to the owner and one recent hire substantially younger.

The whole scenario completely blows up if the 30 year old NHCE decides to move on. Question is this: they commit to various allocation percentages for the owner and the NHCEs in the CB plan in the plan formula. But a couple years down the road when the census has changed, do we have the option of after the fact lowering the owner's CB allocation, or is our only recourse to bring up the NHCE allocation rates (and hence present a factor of 15-20 multiple, not percentage, increase to the NHCEs). Gut feeling is that we can't cut anybody (owner or not), so that the only corrective measure allowed is to zoom up the NHCE allocations to a level that won't exactly have the client feeling warm and fuzzy, to put it mildly. Or am I overcautious with such an aggressive design?

[AndyH]

Mike, why are you reluctant to cut back the allocations prospectively? Not sure what you mean by "after the fact". But in a future year, or a year in which the accrual is not protected (e.g. < a year of service) I don't see an issue if such cnanges are not frequent.

But in general there are lots of bombs that will go off in the next few years based on some proposals I've seen. I think the 412(i) crowd is on this bandwagon now.

[abanky]

Say an HCE was receiving an allocation of 50% of compensation per year, what would be the potential pitfalls (other than having to give more to the NHCEs) to raising the allocation to say 75% of compensation?

So anyone sees anything strange in this.... say no other employees.

[SoCalActuary]

Say an HCE was receiving an allocation of 50% of compensation per year, what would be the potential pitfalls (other than having to give more to the NHCEs) to raising the allocation to say 75% of compensation?

So anyone sees anything strange in this.... say no other employees.

The only issue I see is 415 limit application to the accrued benefit.

[abanky]

No 415 limit issue...

Currently, he's pretty far under the 415 limit, so in the final couple years, we were thinking about increasing his allocation to get him as close to the 415 limit as possible.

I wasn't sure if there was some accrual rules that I need to keep in mind when increasing the allocation that drastically.

[abanky]

Getting back to this topic. Is there any accrual issue if say a nhce was getting 2% allocation each year than jumped into a HCE group which was say 57% each year?

[david rigby]

What do you mean by "jumped"?

[abanky]

The plan had two categories for allocation, HCEs and NHCEs. The employee was a Nhce in 2008 and because of compensation became a HCE in 2009.