Offset in a Cash Balance Plan

[Guest RedsPredsVolsTitans]

Cash Balance Plan cross tested with a DC plan. According to the plan document the accrued benefit will be reduced by the value of the vested portion of the account balance attributable to Employer contributions in the DC plan. The offset percentage is 1.25%.

The DC plan is providing a 3% safe harbor and a 4.5% profit sharing.

Not an actuary, just work for one. Never had an offset plan before. My boss doesn't know either.

Couple Questions:

1. When i do the valuation, what do i do with the 1.25%? If it's being provided in the DC plan then it wouldn't show up really for valuation purposes right?

2. When i do the 401(a)(4) testing - I'd just treat as DC money like it is right?

3. What about the 401(a)(26) test? Am i supposed to test to make sure that the 1.25% would satisfy the meaningful benefit formula requirement?

Thanks in advance for the help.

[Mike Preston]

My head hurts. You can't offset cash balance allocations by DC annual additions. You CAN offset hypothetical account balances by the actuarial equivalent of the defined contribution account balances (although to do so requires very careful drafting in the plan document and brings up many questions as to whether the cash balance plan remains an applicable plan.

I'd need to see the complete language in the plan to go further because something is lost in translation.

[Guest RedsPredsVolsTitans]

Obviously I don't understand it enough to ask my question correctly. Thanks for reply.

[Effen]

Obviously I don't understand it enough to ask my question correctly.

Not an actuary, just work for one. Never had an offset plan before. My boss doesn't know either.

No offense, but based on these statements your actuary boss should probably review the ASOPs and determine if he/she is qualified to do this work. Floor offsets are very complicated and high on the IRS target list. They are nothing to dabble in if you don't really know what you are doing. You could be doing a large disservice to your client, and your firm if it explodes.

[AndyH]

Maybe the incorrect part of this discussion is "cash balance". And the incomplete part was the formula description of what the 1.25% means.

Otherwise, if it were a regular DB the question would make more sense.