Cash Balance plan testing questions

[AndyH]

In the post-PPA world, for a cash balance plan that is not subject to 417(e) whipsaw that defines the accrued benefit as the account balance, is it still necessary to convert the account balance to an annuity if the plan is being tested on an allocations basis (as part of a 410(b) test). Or can the account balance be uses as the allocation for purposes of determining the normal allocation rate?

Opinions?

Second question, is the pvab for top heavy testing the account balance? (Obviously this is a document question but the ones I'm working with are foggy at best on this issue and aren't necessarily PPA final form, e.g. Corbel).

[Penman2006]

Andy,

It looks like 1.410(b)(5) points to 1.401(a)(4)-8©(2) - An employee’s equivalent normal and most valuable allocation rates for a plan year are, respectively, the actuarial present value of the increase over the plan year in the benefit that would be taken into account in determining the employee’s normal and most valuable accrual rates for the plan year, expressed either as a dollar amount or as a percentage of the employee’s plan year compensation. Using the cash balance account would not be using the benefit that would be taken into account in determining the employee’s normal and most valuable accrual rates for the plan year, so I don't think you can do that.

[John Feldt ERPA CPC QPA]

We project the account to NRA using the crediting rate and convert to an accrued benefit, and calculate the PVAB at the testing rate. Seems to go against reason to come up with a PVAB amount much lower than the cash balance credit, but that seems to be what is supposed to happen inside these regs for now, maybe they'll rewrite them sometime (that may not be a good thing though).

[AndyH]

Thank you both, I agree. And your cite is right on David, thank you.

Same thinking on top heavy?

[Penman2006]

I'm not sure offhand about the top heavy question. The document I've been using uses the same rate for interest crediting and annuity conversion so you end up with the pvab = account balance. I don't have any CB plans with employees getting 2% TH minimums because they are always provided in the DC plan. (All of my CB plans except one that's frozen are combo's.)