415 limits and cash balance plans

[ScottR]

I have questions about how the Section 415 limits affect the funding and testing of CB plans.

Let's say that the first year's contribution for a participant is $150k, and that this is less than the current max permissible lump sum benefit under Section 415. Further assume that the plan's NRA is 65, and that this is also used as the Testing Age.

For testing purposes, we take the $150k contribution, project to NRA using the current int crediting rate, and convert to an equivalent annual benefit. Let's say that this result comes to $20,000. Since this exceeds the 415 dollar limit after 1 YOP (i.e. $195k x 1/10 = $19,500), do we use $19,500 or $20,000 for running the general test?

How about the impact on funding? Here, we project the $150k contribution to ARA using a "reasonable" interest rate, and then discount back to PV using the funding segment rates. After we project to ARA, do we limit that result to the 415 max permissible lump sum at ARA, before discounting back at segment rates?

TIA.

.. Scott

[SoCalActuary]

Your example would require an interest crediting rate in excess of 5.5%, or an unusual mortality table, or both.

When the current balance is below the 415 lump sum value, you are computing the effects of 5.5% interest and the current 417 mortality table, along with your plan's actuarial assumptions for early benefit payment.

I have trouble seeing your math work unless you project the current balance to NRA at a rate higher than 5.5%

Can you give an example?

[David MacLennan]

I don't think his example necessarily requires a specific interest rate or mortality table. For example, the age 62 415 $ limit is unreduced from age 65, so the amount payable immediately can be greater than the amount payable at a later age. Same with the comp limit at any given age ($ limit was the example here though).

[SoCalActuary]

I don't think his example necessarily requires a specific interest rate or mortality table. For example, the age 62 415 $ limit is unreduced from age 65, so the amount payable immediately can be greater than the amount payable at a later age. Same with the comp limit at any given age ($ limit was the example here though).

Thanks, Dave. I didn't notice that he was using age 65, where the notch applies.