current comp required for cash balance allocation?

[gregburst]

Owner has high-3-year established average comp of $250,000. Cash balance plan was established for 2015, with the owner slated to receive a flat $100,000 each year (with no percentage of pay mentioned). But 2015 census comes back with owner showing $0 pay. Can he still receive the $100,000 thanks to his prior comp (similar to a traditional DB)? Or is a CB allocation limited to current comp, regardless of the benefit formula in the document?

[Lou S.]

Self employed or W-2 employee?

Also I'm not sure if the IRS has a stated position on this but I was under the impression that they frown upon giving accrual credit to folks with zero pay.

[gregburst]

W2. S Corp.

[Mike Preston]

It is not altogether unusual for an owner to work hard for a year and yet have zero compensation. If by following the plan terms an accrual violates a rule (think 415) then the document is drafted poorly. Assuming 415 is not an issue then the original intent would no doubt be to test compliance with the a4 using the general test (hard to believe a flat benefit of that size would satisfy a safe harbor). So do so. If you pass, you pass. If you fail, fix it by increasing NHCE's as you would with any a4 failure.

[gregburst]

This is an owner only plan. No employees. How does that change your answer?

[Mike Preston]

It doesn't. It may render part of it moot, though. Can you see what part?

[My 2 cents]

It doesn't. It may render part of it moot, though. Can you see what part?

My guess - 415 worries stay, 401(a)(4) worries go.

[AndyH]

The short answer is no, a CB allocation is not limited to (or by) current comp. It is limited by the DB 415 limit which is not based on current comp.

Actually, the allocation is not limited by 415 unless the plan so specifies, the amount that can be paid is, as I understand it.