Cash Balance and Forfeiture

[retbenser]

Given: Cash Balance (CB) Plan with Interest Credit = Actual return on assets.

Employer would like the situation where the sum of all participant's CB balances = Assets (similar to DC plan).

I think this situation is possible -- except for the existence of forfeiture (due to vesting schedule).

In a DB plan, forfeiture would be a "gain" used to reduce contribution.

Question:

Is it nevertheless possible allocate the forfeiture proportionately to increase CB balance and to remove this gain? (assume we will amend the plan document if this is legally possible).

Thanks.

[Grendel77]

If you did ad-hoc amendments that would provide benefit increases that in the aggregate happened to equal the "forfeitures", I don't see a problem with that. I think there's a issue with writing this into a plan as you describe it above though, because the benefits have to be definitely determinable.

Also, I think there's a prohibition on negative interest credits, so if there's a loss on assets that's at least one other situation in which the hypothetical balances could not match plan assets.

[retbenser]

If you did ad-hoc amendments that would provide benefit increases that in the aggregate happened to equal the "forfeitures", I don't see a problem with that. I think there's a issue with writing this into a plan as you describe it above though, because the benefits have to be definitely determinable.

Also, I think there's a prohibition on negative interest credits, so if there's a loss on assets that's at least one other situation in which the hypothetical balances could not match plan assets.

Thanks.

Just a note: The negative interest credit is on a cumulative basis (i.e. not annual) -- so it may not that bad.

[frizzyguy]

Just curious: Can we get a little background on what's causing this question?

[FAPInJax]

Note that the 'real' rate of return must still ensure the participant receive no less than the total amount of contributions made. Therefore, a negative rate of return could cause a situation where the assets and the balances are out of sync.

My opinion is that there is never a forfeiture. The hypothetical account balance is just that - not real. A partially vested participant who is paid 60% of their account balance has the remaining 40% just disappear. It is not applied to other participants.