Maximum Cash Balance Contribution

[emmetttrudy]

Everything I have read and seen regarding Cash Balance contributions is that they are strictly age-dependent. I've come across a couple of different maximum calculators that tell me a person born in 1956 could put away about $135,000 per year and a person born in 1963 could put away approximately $80,000 per year. Is this true regardless of their compensation? For example, if you had a 2 person plan (both owners), at the ages above, could the credits be $135k and $80k, respectively, even if they are making only $50,000 each?

[david rigby]

Usually, such examples of DB plan contribution anticipate that the participant has compensation sufficient to fund for a benefit under IRC 415(b)(1)(A). In your example, it appears that 415(b)(1)(B) would apply.

[emmetttrudy]

Are there any tools out there that could provide me a good estimate based on compensation that isn't at the max?

[Blinky the 3-eyed Fish]

I know of a few actuaries who are tools. They could tell you the answer.

This is an educated guess and I didn't check the numbers you provided, but chances are they are for age 62 retirement. The dollar limit is $195,000 for that age. Thus if compensation is only $50,000, and assuming that too is the hi-3 average, then take the numbers and multiply by 50/195.

Of course, nothing substitutes for using an actual tool, err... actuary.

[emmetttrudy]

If the hi-3 avg is only $50,000 then we're looking at a maximum monthly benefit of $4,167 commencing at NRA. This would be approximately a $620,000 lump sum at retirement.

So obviously a contribution credit in excess of $100,000 for 6 or 7 years is going to end up in a lump sum greater than the 415 limit (assuming compensation remains about $50,000).

Is your funding limited each year to the 415 limit? Or can you fund in excess of the 415 limit for a year, just as long as when distribution time comes the participant does not receive a distribution in excess of the 415 limit?

[SoCalActuary]

If the hi-3 avg is only $50,000 then we're looking at a maximum monthly benefit of $4,167 commencing at NRA. This would be approximately a $620,000 lump sum at retirement.

So obviously a contribution credit in excess of $100,000 for 6 or 7 years is going to end up in a lump sum greater than the 415 limit (assuming compensation remains about $50,000).

Is your funding limited each year to the 415 limit? Or can you fund in excess of the 415 limit for a year, just as long as when distribution time comes the participant does not receive a distribution in excess of the 415 limit?

For your general sales knowledge, the actuary is not allowed to project a funding benefit that exceeds the 415 limit.

However, for plans where the HCE has not been granted a benefit increase by amendment recently, you can deduct a contribution that brings the funding ratio up to 150% of funding target. So a 415 limit benefit of $620,000 would allow you to deduct for a target asset of $930,000.

What you do with the excess assets upon plan termination - well that is another discussion that involves your actuary.