Cash Balance Owner Allocation Formula

[MGOAdmin]

If I want to write the plan document so that it gives the Owner's the maximum lump sum under 415, do I need to include how that is calculated.

Basically, we want the owner's to get the max each year without having to amend each year.

Is there a better way to write it so they owner's get the maximum allocation?

Thanks for your input.

[Effen]

You are working way to hard, and just asking for trouble.

Pick a safe amount close to the 415 limit and use the maximum funding limit to keep the plan overfunded. Then, in the 9th year, or when he starts wanting to terminate, calculate the maximum benefit and make sure the assets don't exceed that amount.

This works great, especially if you don't have any other participants.

IMHO, the 415 limit is too fluid to try to match every year.

[david rigby]

This also depends on the anticipated cash flow. Don't assume it will be level every year.

If sponsor thinks corporate cash flow in year 9 or 10 (for example) might be much lower (or higher) than in year 3, then plan for it, especially as Effen has suggested. Ok, this might sound simple or intuitive, but it's overlooked. Just ask the question.

[John Feldt ERPA CPC QPA]

We've seen a few takover plans where the prior provider put in a cash balance credit equal to the present value of about 10% the 415 dollar limit using 5.5% interest but not to exceed the difference between the partipant's actual cash balance account and the present value of their full 415 limit at 5.5%. They even did something like that for the credit for the NHCEs based on the 0.50% of pay. Lots of PV calculations for no real gain. hArd for any participant to project their own potential benefits. I recommend using the approach described by Effen. Use your funding cushions to allow the higher deductions, then amend as needed near the end to handle any excess as 401(a)(4) testing would allow.