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Excess Assets in Terminating Cash Balance Plan


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We have a terminating Cash Balance Plan that has excess assets compared to the benefits owed.

I just want to make sure I'm reading the Plan Document correctly.  It is allowed to allocate the overage to the participants, in ratio to their balance at the time of termination?  So instead of reverting the money back to the Employer (which would cause taxation), we can pay it all out as long as the document allows?

I'm 95% sure, I just want to make sure I'm not crazy :)

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The above word "allows" might imply some discretion.  The document probably does not include discretion but check carefully.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Be very careful because a pro rata allocation based on account balances might NOT be nondiscriminatory if those balances ON THEIR OWN are not nondiscriminatory. If balances accumulated under an aggregated cross-tested CB/DC arrangement that leveraged NHCE contributions to pass then you may need to allocate excess differently (such as flat dollar or percentage of pay) or include in a final year combined testing and pass in that fashion, which requires aligned the plan years so your CB may need to run to 12/31.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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  • 3 weeks later...

Putting the issue of "nondiscriminatory" to the side...excess assets can be distributed to the participants, even if the plan document states that excess assets revert to the employer. For a plan termination with the PBGC, if you are audited, the PBGC will only calculate the normal accrued benefit, if reversion is allowed. If reversion is not allowed, the PBGC will calculate the normal accrued benefit and the excess assets calculation. You don't need to amend the plan document to state excess assets will be paid at termination. By amending the plan document to pay the excess assets, you just open the plan up to additional review from the PBGC.

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