cash balance plans and AE

[abanky]

If a cash balance plan has an AE of

Preretirement mortality: none

preretirement interest: 5%

Postretirement mortality: 94 GAR

postretirement interest: 5%

Hypothetical interest 5%

Does the plan have to amend both the AE and hypothetical interest or just the hypothetical interest?

[Mike Preston]

I think the answer you are looking for is just the hypothetical. But that presupposes that 5% won't satisfy the regs that are about to be published. How would you know?

[abanky]

I was under the impression that the hypothetical interest was to be a "market rate of interest".

I think that’s what it says in the Erisa outline book, Chapter 6, Part C 4 a

[Mike Preston]

Agreed, but who is to say that 5% won't satisfy the eventual definition of what a market rate is.

[FAPInJax]

There was quite a discussion at ASPPA regarding adding a 'little blurb' to the definition so that it would not exceed the third interest segment which is now required under the new law. So, while 5% may be OK (there is hope that IRS will use it as a safe harbor), several practitioners were planning on amending to ensure that they do not accidentally violate the rules.