cash balance plan early retirement subsidy?

[Guest RBeck]

Has anyone seen a cash balance plan that includes a "subsidy" for general early retirement at specified age and service (e.g., 55/15 years) and/or upon a specified contingent event (e.g., termination due to layoff or job elimination with at least 15 YOS)? I see no reason that you couldn't include some automatic pop-up adjustment to the cash balance account, either a percentage increase or a flat dollar add-on... it shouldn't create a backloading issue because it's not part of the normal accrual formula, and it also shouldn't create a nondiscrimination issue if the subsidy is either available to all or, in the contingent event case, meets the current/effective availability test. And yet I have never seen a CBP that included something like this, and of course one of the popular objections to the cash balance approach is the loss of the early retirement subsidies common in traditional DB plans. Is there an issue or prohibition I'm missing here? Is it just that plan sponsors are trying to stay within the cash balance safe harbor provisions of the 401(a)(4) regs (which generally don't permit subsidies)? Your thoughts would be most appreciated.

[Gary]

I would think plans could have early ret subsidies. I have one plan that preserves the old formula accrued benefit at time of conversion and allows the participant to take that AB and receive it at an early ret date as a subsidy. However, they require that the lump sum be based on the PVAB of the age 65 benefit.