New Cash-balance Regs

[JAY21]

Question on a scenario where under recent proposed regs client wants to use an Index rate for the interest crediting on a cash-balance hypothetical accounts.

If you choose to use one of the equity based index rates (e.g., S&P 500 index) for your interest credit on the hypothetical accounts, and it has a negative rate of return for a year or more, then for funding I assume it's an actuarial assumption as to whate future interest credit to assume to project to NRA for funding purposes. I'm still working my way through those final and proposed regs but if it's just an actuarial assumption issue then I suspect there isn't any guidance.

Any opinion on what one might consider using to make sure the actuarial assumption is reasonable on say an S&P 500 index crediting rate (e.g., S&P 500 returns over past 5 years ? 10 years ? somthing else) ? Just trying to think through the process and what benchmarks one might use for reasonable assumptions.

[My 2 cents]

I had gotten the idea that future projections would generally be based on current rates, but that if the current rate was negative, you would project using a 0% return assumption. Reasonable expectations of future experience would not come into play.

Not sure how this would play out for funding purposes. Have they issued regs on that?

[Kevin C]

There is a Nov. 23 IRS phone forum on the new cash balance regs. They are asking for questions you would like the speakers to address.

http://www.irs.gov/retirement/article/0,,id=218995,00.html