Can Cash Balance Plan be Amended to Condition Right to a Principal Credit upon Employment as of Last Day of Plan Year?

[rocknrolls2]

Employer X maintains a cash balance plan. It wants to amend the cash balance plan so that it only has to make a principal credit for a plan year if an employee is employed on the last day of the plan year. Is there any reason they cannot do this? Thanks,

[Lou S.]

Because that would violate the DB accrual rules.

[rocknrolls2]

Could you be more specific as to which DB accrual rules such a provision would violate?

Thank you.

[ETA Consulting LLC]

In a DB plan, any eligible employee who works at least 1000 hours during the year must be credited with a benefit. The last day of the plan year concept is specific to DC plans only.

Good Luck!

[Mike Preston]

2530.204-2

[My 2 cents]

Please make no mistake - cash balance plans are always defined benefit plans, no matter how much they are disguised to look like defined contribution plans. None of the defined contribution rules apply to them and all of the defined benefit rules apply (i.e., PBGC premiums, no lump sums without spousal consent, no last day rule, minimum contributions that may be greater or less than the "principal credit" - there is no necessary correlation between the assets held by the plan and the total of the account balances, etc.). And don't forget that an annual valuation by an enrolled actuary is always required! And if the enrolled actuary certifies an AFTAP below 80%, lump sum payments are subject to restriction under IRC Section 436.

[david rigby]

Here is a lively discussion from July 2014:
http://benefitslink.com/boards/index.php/topic/55910-benefit-accrual-different-methods/