Cash balance plan accrued benefit

[Belgarath]

A quick and probably dense question: Let's say the hypothetical account balance (HAB) credits interest at (pick a number - say 5%).

If the plan earns 15%, can a lump sum distribution be made to a terminated participant based on the current, very high, HAB? Or is it simply based upon 5%?

Same question if it is a variable rate: I belive there is a floor requiring that the HAB payout can never be lower than the sum of all "principal credits" - but can the HAB amount be extremely high if investment returns go through the roof?

I'm sure there are limitations on this - 415 and/or others, but I just wanted to ask the basic question. Haven't paid any attention to CB plans for years. Thanks!

[ETA Consulting LLC]

Even though it is a Hybrid Plan, the Cash Balance is still a DB plan. This means that the benefit that is paid will be 'defined under the terms of the plan'. Typically, that amount has "NOTHING" to do with the "actual" plan assets; it's a hypothetical. So, if the plan's investments outperforms the crediting rate, it doesn't impact the hypothetical account balance.

Good Luck!

[SoCalActuary]

Welcome to the only growing sector of defined benefit plans. Good luck studying this area.

The interest credited on the hypothetical account is defined under the terms of the plan.

If a plan has consistently exceeded the plan's earnings rate, you can amend the plan to give additional credits.

Further, you can select a specific market-based return, which can be the return on the plan's investment portfolio if it is done correctly.

However, the IRS has some really stupid thinking to the effect that you must project the latest crediting rate to retirement for measuring 415 limits, top-heavy minimums and non-discrimination benefits for testing. Did I say that their thinking is REALLY STUPID? Just wanted to be clear.

Keep studying, and look at some of the recent regs and summaries from ASPPA and elsewhere.