Cash Balance plan annuity calculation question

[AndyH]

I saw a webcast a while ago in which the speaker stated that a cash balance plan that uses the projected accrued benefit as the basis for an annuity option must be careful to avoid having the QJSA be less than the most valuable benefit.

Example, participant retires at age 55 and NRA is age 65. The plan says that the accrued benefit equals the current balance projected to NRA with credited interest (e.g. assume 4.5%). For payment at age 55 the benefit payable is the actuarial equivalent of the age 65 benefit.

If actuarial equivalence was computed at 5.5% and the interest crediting rate is 4.5% this results in a QJSA lower than the value of the account balance and is prohibited.

The speaker said to avoid this, either the monthly benefit must be computed directly from the current cash balance, or the actuarial equivalency rate must be not more than the interest crediting rate.

Agree? Disagree?

Would the answer be different if the interest crediting rate was variable?

[AndyH]

No opinions?

Is everybody using the current account balance/APR for the monthly benefit payable prior to NRA?

[John Feldt ERPA CPC QPA]

Not in any of our plans. We don't have the AE rate greater than the crediting rate.