Market Based Cash Balance investment credits

[AndyH]

There is an article linked to today's Benefitslink newsletter from PlanSponsor magazine that has me scratching my head, "The Cash Balance De-Risking Solution"

It states a number of reasons why using the actual investment return on a cash balance plan is a good idea, and not many, if any, reasons why it might not be a good idea.

But what about the accrued benefit? What happens if the investment return is 15% one year and the next year the sponsor is forced to freeze the plan?. Many documents I've seen say the monthly benefit at NRA is equal to the current account balance projected to NRA using the most recent interest credit. Doesn't that create a huge liability, whether the plan is frozen or not? Not to mention testing problems.

Am I missing something, or is the article?

[John Feldt ERPA CPC QPA]

For most small plans, this idea can cost a lot of benefits to make sure the plan satisfies 401(a)(26) (think zero return or less). Maybe employee benefit costs aren't an issue for the owners of the company.

But worst of all for a small plan, you are setting up the plan to get the owner a lump sum payment at the 415 limit and the actual return comes in at 28% so now calculate the 415 pre-retirement discount at 28% from normal retirement. Tell him because the assets did so well he has to work another year and hope the investments don't go over 5.5% this time?