Termination of Cash Balance Plan

[thepensionmaven]

Does anyone have experience terminating a cash balance plan?

If the accrued benefit is equal to the hypothetical account balance, how do you handle the disparity between the total actuarial value of plan assets and the total hypothetical account balances of all psrticipants?

[Effen]

not sure I understand your question. Why would it be different than any other type of db?

[SoCalActuary]

Does anyone have experience terminating a cash balance plan?

If the accrued benefit is equal to the hypothetical account balance, how do you handle the disparity between the total actuarial value of plan assets and the total hypothetical account balances of all psrticipants?

You fund for the shortfalls or the substantial owners waive benefits for underfunded plans. On the other hand, for overfunded plans you allocate the excess, or you transfer the excess to a successor plan. If you want to revert the excess plan assets, get an ERISA attorney involved.

From your question, it appears you need to do a lot more studying of how defined benefit pension plans operate. Good luck.

[thepensionmaven]

Does anyone have experience terminating a cash balance plan?

If the accrued benefit is equal to the hypothetical account balance, how do you handle the disparity between the total actuarial value of plan assets and the total hypothetical account balances of all psrticipants?

You fund for the shortfalls or the substantial owners waive benefits for underfunded plans. On the other hand, for overfunded plans you allocate the excess, or you transfer the excess to a successor plan. If you want to revert the excess plan assets, get an ERISA attorney involved.

From your question, it appears you need to do a lot more studying of how defined benefit pension plans operate. Good luck.

Thanks for the information. Didn't realize that criticism would be a part of the answer. That was very useful.

[SoCalActuary]

Glad to see you participating in this discussion forum, and no intent to be critical. You asked a fundamental question, how to manage the difference between assets and liabilities, which is entirely a DB problem.

That level of question indicates that you do not have a daily working knowledge of DB plans, which is not a criticism - just a characteristic. If you pursue the knowledge, I hope this forum helps.

[thepensionmaven]

Glad to see you participating in this discussion forum, and no intent to be critical. You asked a fundamental question, how to manage the difference between assets and liabilities, which is entirely a DB problem.

That level of question indicates that you do not have a daily working knowledge of DB plans, which is not a criticism - just a characteristic. If you pursue the knowledge, I hope this forum helps.

Actually, I was asking if there is any difference in terminating a cash balance vs a traditional DB.

I have been in thepension business for 30 years - I know what I know and ask when I don't

I have handled only a handful of CB plans vs over 100 Traditional DBs.

[John Feldt ERPA CPC QPA]

The Pension Protection Act added a rule about the crediting rate and A.E. that must be used after the date of plan termination for a cash balance plan. Check the plan document for that language.

It probably says something like: if the crediting rate is variable, then the rate for determining the accrued benefit is the average of the plan's crediting interest rates for the last 5 years; and that the interest rate and mortality used for determining annuities shall be those in effect under the terms of the plan on the termination date, except if the interest rate is variable, the same 5-year averaging rules will be applied.