Cash Balance plan term - PBGC covered

[rcline46]

Hi all. Starting a termination of a 5 year old CB plan covered by PBGC. Our first CB termination. Hard freeze is done. We expect audits by both IRS and PBGC once they know (due to their lack of experience)

Looking for anyone who wants to share traps and pitfalls.

Wondering how to fill out the PBGC Benefit Commitment form since 'monthly accrued benefit' is not what is guaranteed.

Thanks for all suggestions and condolences!

[John Feldt ERPA CPC QPA]

Upon termination of a cash balance plan, isn't the interest crediting rate required to become fixed (based on some prior year's rates)? If that's true, will the accrued benefit still fluctuate?

[Hojo]

The accrued benefit at Age 65 is dependent on 417(e) factors so it can still fluctuate.

I think you simply need to put the caveat in Benefit Committment Form that the amount of the benefit may be different due to the timing of the payment, gain or loss in the plan's assets or a change in government mandated interest rates. Just CYA and you'll be ok.

[Effen]

I'm not so sure. I believe on termination the crediting rate has to be the average of the rates over the last 5 years. Not sure what happens if it goes into another year, but I think you are supposed to lock in the crediting rate.

That said, I agree with Hojo on the caveat. Always a good idea in a cash balance plan to state that the monthly benefit can fluctuate.

[AndyH]

Agree with Effen (as usual).

p.s.

I can't wait to read some day about a plan that uses the actual rate of return that terminates following a couple of up years, so it has to lock in above market experience for future years....

[frizzyguy]

Just an FYI, I wouldn't "expect" an audit. I have been through many of these. The times that they are usually audited are generally when you put in bad dates on the PBGC 501. I would make sure that you hit the windows or the PBGC will audit.

Also, if the interest crediting rate isn't fixed, Effen is correct. I guess if it is fixed Effen is correct too... Oh math, you're a fickle mistress.

[rcline46]

The PBGC told me the 5 year average is true for projecting to retirement. Convert at plan specified rates to an annuity. The annuity goes on the Benefit Commitment Forms, and the present value of the annuity, not the Hypothetical Balance, is the liability for the 500 forms. Guess I will attach an explanation to the 500 forms. IRS liability - hmmm, 6088, hmmmm. Probably use the same numbers even though the payouts won't match. Oh well.