Cash Balance Plans RMDs and SOBs

[Guest jpadavic]

I'm looking at a CB plan for my client and we have some potential RMDs, and it appears that they will want to take annuities. I'd like to make sure that I am thinking of the initial and annual recalculations correctly.

They also do not issue SOB Notices, so I'd like to confirm what I suspect is the calculation methodology going forward.

RMDs

Accrued Benefit is of course defined as the SLA of the AE of the account balance (subject to prior plan min benefits). Plan has frozen service accruals.

I believe what I want to do for the initial RMD is calculate the SLA as of the 12/31 prior to the Req Beginning Date, based on age and assumptions applicable at that date, and assume that that would be my initial RMD. Let's call the 12/31 balance A and the SLA that X. I would grow A with investment credits for the year, back out 9 months of payments of X (without interest), and annuitize using age and assumptions applicable at the 12/31 after the initial RMD began; let's call this Y. Y can be less than X. I don't believe I have to actuarially increase X to age at Y and compare to Y, like I may have to in a late retirement calculation as described below. This iterative process would go on annually. If ee takes a lump sum at initial RBD, they would simply get their Account Balance.

Late Retirement without SOB Notices

Client also has not made it a practice of issuing SOB Notices to those coming up on NRA. I think here I would calculate ABs at NRD and subsequent EOYs until commencement. At the 12/31 after NRA, I would compare the AE of the AB calcd at NRA to the AB at 12/31 after NRA and take the greater of the two as the AB as of 12/31 after age 65. Then at the following 12/31, again compare the AE of the winning AB from the prior 12/31 to the AB at the current 12/31 and store for future use. (I would use age and assumptions applicable at each date for these calculations.) Continue this iterative process until commencement and/or RBD.

Any thoughts on these questions would be greatly appreciated.

Thanks much

[Mike Preston]

I think your RMD methodology is at odds with the regulations. If you are annuitizing X then that benefit is no longer a part of your participant's cash balance account. You are done once the annuitization takes place.

Since you said that the plan is frozen, this participant is now in pay status. End of story.

Since you said that the plan is frozen, I don't understand what you are comparing in your Late Retirement and SOB section. If there is nothing to compare, there is nothing to "win".