Cash Balance Plan - No Suspension of Benefits Notices Provided

[Guest jpadavic]

Several plans I am looking at are cash balance plans that have not historically provided Susp of Benefits notices. Several such plans have also frozen service accruals/credits, but not investment accruals. One or more of these plans also have frozen traditional plan portions of benefits payable from the CB plan.

My question has to do with which piece of benefit (ie CB portion or trad plan portion), if either or if both, must give the greater of accrual of benefits or actuarial equivalence? Unfortunately, I'm not finding much info online re: CB plans and SOB notices. Of course, the normal form of benefit for the CB portion of benefits is an actuarially equivalent SLA.

I have been advised that for the CB portion with the frozen service credits, so long as the investment credits continue to accrue, the actuarial equivalence of benefits as of prior year end dates does not have to be calculated.

As a rough example, let's consider an ee who doesn't commence until 68. If as of this ee's NRD, his CB portion of benefits were as follows: $28500 as LS or $217.02 as SLA. At the end of the year including his NRD, and only giving investment credits from NRD to the end of the year, his CB portion lump sum is $29575, which is equivalent to $224/mo as an SLA.

1) Because the ee gets continued investment credits, I don't believe we'd have to calculate the actuarial equivalent of the $217 SLA from his NRD to the end of year including his NRD. That would likely be greater than the $224/mo benefit (which is AE of the CB balance) as of the end of year of the NRD.

2) If however, the plan has a frozen trad portion of benefit and no suspension notice is issued, that portion of benefits has to be actuarially increased, correct?

If possible, please opine on the accuracy of the statements 1) and 2) above.

Thanks much

[SoCalActuary]

Yes to both 1 & 2.

The CB benefit continues to grow under the terms of the plan, so it is getting the actuarial equivalent. Now, I could construct an argument that the difference between interest crediting rate and the plan's actuarial assumption can cause a problem. But that is just stirring up trouble that does not need to exist.