50% of FT question

[truphao]

I am going to use a simplified example.  One-person Cash Balance Plan, end of the year valuation.  Pay Credit in 2023 is $100,000.  Let's assume the interest crediting rate and all segment rates are 0.00% to avoid the actuarial noise. In December 2024 the Pay Credit is amended to $125,000 effective 1/1/2024.  The question is about what amount to exclude from the 50%-of-FT cushion calculation.  There is no impact for the 2024 valuation, I think this is clear.  For the 2025 valuation we have to exclude the $25,000 increase in FT on account of the Plan Amendment adopted within the 2-year window.  I think this is pretty clear as well.    But what about the 2026 valuation?  Do we get to exclude $50,000 from the FT (2 years' worht of the increase in Pay Credit) or do we calculate the 50% of FT cushion without any exclusions? Agressive me is thinking the full FT can be used since the 12/31/2026 valuation date is more than 2 years after the effective date of the amendment.  The conservative me is thinking that since the FT for the 12/312026 valuation is based on the benefit accrued as of 1/1/2026 I still have to carve out the Amendment from the FT for the 50% of FT cushion piece.  Thoughts?

[Jakyasar]

My 2 cents, 2 years is equal to 3 years. Since amendment to increase for an HCE was for 2024, for 2024, 2025 and 2026 you need to adjust the cushion.

The way I do is run 2 vals concurrently, one before amendment (I call it B4) and one after. The cushion is based on B4 val and that is the limiting number on the new val for deduction, regardless of whatever the FT is on the new val. FT is not limited, only the cushion is limited which must be based on the prior benefit structure. Remember, this is for deduction purposes only.

FWIW and I hope I am not wrong as this was discussed with many different actuaries and collectively agreed upon.