increasing allocation formula in document

[Scuba 401]

is it permissible to include COLA or similar language that automatically increases the hypothetical allocation formula in the plan automatically every year without having to amend the plan?

[Mike Preston]

The technical answer is yes, the practical answer is probably not. What you have to watch out for is the 133% rule on accruals. Most COLA's will cause that test to fail.

[SoCalActuary]

Generally, the cost of a consistent benefit accrual in a DB plan grows each year at the rate of the plan's pre-retirement interest.

So a COLA on the CB accrual will not cause increasing benefit accruals when measured against the annuitized benefit at retirement.

The exception would be for a COLA that exceeded the interest rate.

I believe this type of COLA escalation would probably work. Similarly, a COLA based on years of service would work.

But you still have to pass all the normal tests.

[Mike Preston]

I like SoCal's answer better than mine, if you are talking about a cash balance plan. Mine still holds if you are talking about a unit accrual defined benefit plan.

[Scuba 401]

I like SoCal's answer better than mine, if you are talking about a cash balance plan. Mine still holds if you are talking about a unit accrual defined benefit plan.

thanks guys. appreciate the answer. yes this was for a a cash balance plan btw. will let you know if i have a follow up.