Term DB Start CB

[Cloudy]

Sponsor has terminated DB plan in 2015, participants will be paid out in 2016, and is considering starting a CB plan in 2016.

I know that the DB benefits need to be considered for 415, and I am aware of the predecessor plan rules for vesting.

The decision to terminate the DB plan was made before any thought was given to adding the CB plan, but it works to side-step doing a CB conversion. Are there any problems with doing this?

[My 2 cents]

A cash balance plan is a defined benefit plan, so it appears that the existing defined benefit plan is being replaced with another defined benefit plan.

I am not a lawyer, and it may be advisable for you to check with an ERISA attorney. Having said that, is it possible that the sequence of events could be interpreted by the IRS as a pretext to pay benefits to active employees (in-service distributions) outside of a bona fide plan termination? I don't know, but it is something to consider. Why not rescind the 2015 termination and add a cash balance feature to the original plan?

[Effen]

I agree with 2 cents and the facts and circumstances need to be considered. From what you described, these sound like they were independent decisions. Also, terminating the traditional db, then starting a cash balance, would seem to bolster your argument.

Also, it isn't unheard of for a professional corporation to terminate their existing db, then immediately start a new one as a was of minimizing market risk. Once a doctor group gets a few million in the plan, and they realize a 10% market drop could cost them a few hundred thousand dollars, they will terminate the plan to avoid that potential, then start another one. I am not saying it is a perfect strategy, but I know it is fairly common in some circles.