First Year Valuation - At-Risk?

[emmetttrudy]

First year for a Cash Balance Plan, using an end of year valuation date. The nature of the MRC calculations means that the minimum required contribution is actually lower than the sum of the credits for the first year. Vesting service is excluded prior to the effective date of the Plan so in Year 1 the FT = 0, which means the MRC is just equal to the TNC (again, which is less than the sum of the credits allocated on Year one).

Is it ok to consider the Plan "at-risk" for the first valuation so the maximum deductible contribution turns out higher than the minimum required? Or are you stuck with a maximum equal to the minimum for year one, and not being able to fund the sum of the credits.

[frizzyguy]

Yes sir, I don't have a cite off hand but I know the rule exists and I have seen it through audit. You can always use this method but it generally is only bigger, in my expirience, in the first few years of the plan.

There is the question on whether you can apply the $700 per participant and 4% load though.

I would be curious to see what others are doing with that.

[AndyH]

The at-risk part is one of the 404 calculations. The at-risk calculation is not considered in computing the minimum, so, yes, the minimum is often less than the account balances especially if the interest crediting rate is less than the discount rate.

[emmetttrudy]

Thanks. Yes, the first couple of years is all we really tend to want to use it to our advantage. Starting in year two, once there's a funding target typically the maximum is high enough that they can contribute what they want to anyway. We work with a couple of different actuaries. One uses this method consistently while the other doesn't necessarily like it.

[frizzyguy]

Using the at-risk method isn't aggressive. Using the load factors of $700 and 4% may or may not be pushing it a bit.