CB Plan - interest crediting upon termination

[Jakyasar]

Hi

Looking at a take over. Interest crediting period is determined on a pro rata basis upon termination.

If I want to amend it to zero i.e. no adjustment until year, is this 411d6 issue?

Thanks

[John Feldt ERPA CPC QPA]

Seems like it is to me.

[truphao]

agree.  Furthermore, althouth it is legal not to give an interest credit until the end of the year, as an actuary I have an issue with that.  Seems like a loss of "economic value" to me, and I do not like it; we normally use a "pro-rata" approach.

[Jakyasar]

Truphao, I understand your position but it is approved by the IRS i.e. in the plan document as pre-approved. This is a different discussion though.

Thank you both for your comments.

[Bri]

Are you looking to change how to pro-rate excess assets upon PLAN termination, or is it a case where you're looking to only pay the 12/31/23 hypothetical account balances and not 11 months' worth of the interest crediting rate for 2024 (for the participant's termination of employment)?

[Jakyasar]

Neither, looking to amend the plan effective 1/1/2025 and switch to no pro-rata

[Effen]

I agree with John - I think switching an active plan from "pro-rata" to "no pro-rata" would be a 411d(6) violation.  And, FWIW, I agree with Truphao that I don't understand why the IRS has permitted "no pro-rata" as it is clearly a reduction in the accrued benefit during the year, but I acknowledge they do permit it. 

[Jakyasar]

I think IRS allowed it because the account balance does not go down (referring only to fixed rate) and they did not calculate how it would affect the monthly accrued benefit itself, just thinking out loud.

Non pro-rata is in various documents that I have seen so it is valid and kosher, at least per IRS pre-approved documents. Different actuaries may have different opinions but as long as the document provisions are followed and applied, that is life, fair or not.

Thank you all for chiming in for the 411d6 issue