Cash Balance - Is pay credit required to be deposited for a terminated participant

Hi

This is theoretical question as never encountered before. Might be a silly question but I am curious.

Brand new CB plan, effective 1/1/2021. For vesting (3 year cliff), no prior service is provided.

Participant enters the plan on 1/1/2021 with pay credit of $1,000. Accrues 1,000 hours but terminates during the year. Thus 0% vested.

Accrues the pay credit and the equivalent AB is used to pass 401a26. However, at end of year, his pay credit is forfeited due to 0% vesting, thus account balance is $0 at end of year.

Does the plan sponsor need to make a deposit of $1,000 on this person's behalf? Assume minimum required contribution requirement is not an issue, whether this $1,000 is deposited or not.

Thank you,

This is the key, "Assume minimum required contribution requirement is not an issue, whether this $1,000 is deposited or not."  If they make the minimum required contribution then who cares?

I'd think the inclusion of the amount in the calculations may differ in BOY vs. EOY valuations, too.

It is EOY val

1 hour ago, Jakyasar said:

Does the plan sponsor need to make a deposit of $1,000 on this person's behalf? Assume minimum required contribution requirement is not an issue, whether this $1,000 is deposited or not.

Am I only one who is confused by this question? The plan sponsor have to make the minimum required contribution, and may make more than the minimum required contribution. The plan sponsor doesn't really makes deposits on anyone's behalf.

14 minutes ago, Calavera said:

Am I only one who is confused by this question? The plan sponsor have to make the minimum required contribution, and may make more than the minimum required contribution. The plan sponsor doesn't really makes deposits on anyone's behalf.

I think many small CB plans like to match the deposits to the contribution credits as long and it's in the MRC and max deductible range.

Looks like as long as min required is done, who cares other than matching pay credits.

22 hours ago, Lou S. said:

I think many small CB plans like to match the deposits to the contribution credits as long and it's in the MRC and max deductible range.

Unfortunately not just small CB plans. Which brings whole different set of issues that plan sponsors are thinking about CB plans in terms of 401k plan, that in order to allocate something they actually need to contribute that something. Or because they already withheld something from partners, now they have to contribute exactly what they withheld, not more, not less.

Very complicated issue, big can of worms to open here.

1 hour ago, Jakyasar said:

Very complicated issue, big can of worms to open here.

not really

Perhaps the real question is whether or not the allocation that is forfeited is in the Normal Cost for an end of year valuation.  In Relius, for example, I'm not sure it can be a forfeiture in the Summary of Accounts report and in the Normal Cost without some manipulation.

My system forfeited and deleted the TNC

<< Accrues the pay credit and the equivalent AB is used to pass 401(a)(26). However, at end of year, his pay credit is forfeited due to 0% vesting, thus account balance is $0 at end of year. >>

I question that a pay credit that is already forfeited at year-end can be used to pass 401a26.   How can you say this participant is "benefitting" in the Plan on the 12/31/2021 testing date when his benefit is already forfeited?    In that situation, we would look for another "benefitting" participant to pass 401a26  (someone who is still active on 12/31/2021).

....  Jeff

Let me rephrase, system did not delete it, just applied 0% vesting and assumed TNC was $0. technically benefit is accrued and then 0% vesting applied thus the forfeiture.

The system used the benefit for testing.

This is  to me and that is why I am questioning it. I

Sorry, reposting as hit return by mistake.

Let me rephrase, system did not delete it, just applied 0% vesting and assumed TNC was $0. technically benefit is accrued and then 0% vesting applied thus the forfeiture.

The system used the benefit for testing.

This is the first time I have a participant terminating in the first year and that is why I am questioning it. 

Thank you

Why wouldn't you include it? It's part of the on going plan benefit formula. The fact that is was forfeited due to non-vesting is irrelevant to it being accrued in this case.

Now if you failed testing and do an -11(g) amendment to pass you have to give a "meaningful benefit" which includes some form of vesting on those corrective accruals/contributions to include that in the testing. I mean think about it is the person terminated January 2, 2022 would you even be thinking about their 0% vested benefit for 2021?

Lou, I am assuming you are responding to Lou, especially your first comment? Second part, in agreement.

1 hour ago, Jakyasar said:

Lou, I am assuming you are responding to Lou, especially your first comment? Second part, in agreement.

I've been accused of talking to myself before but in this case no. I was responding to your "first time I..." question.

On 2/3/2022 at 12:35 PM, Calavera said:

Which brings whole different set of issues that plan sponsors are thinking about CB plans in terms of 401k plan, that in order to allocate something they actually need to contribute that something.

One of the reasons for a CB plan is so doctors/lawyers/other small employers can "understand" a DB plan, but it doesn't quite work out that way.

Lou, I meant Jeff's comment but thank you for clearing it out.

Thank you all for your comments and have a nice weekend. Some of us will have blizzards and good luck with that.

On 2/4/2022 at 12:53 PM, Lou S. said:

Why wouldn't you include it? It's part of the on going plan benefit formula. The fact that is was forfeited due to non-vesting is irrelevant to it being accrued in this case.

Now if you failed testing and do an -11(g) amendment to pass you have to give a "meaningful benefit" which includes some form of vesting on those corrective accruals/contributions to include that in the testing. I mean think about it is the person terminated January 2, 2022 would you even be thinking about their 0% vested benefit for 2021?

Lou, I don't disagree with your comment, but the regulation adds some uncertainty in my opinion.   From 1.430(d)-(1)(c)(1)(i) below.  If an allocation is forfeited on account of a deemed distribution, does that mean it is not counted under this paragraph, which seemingly exempts benefits paid as of the valuation date?

On 2/4/2022 at 5:03 PM, Jakyasar said:

Lou, I meant Jeff's comment but thank you for clearing it out.

Thank you all for your comments and have a nice weekend. Some of us will have blizzards and good luck with that.

On 2/9/2022 at 1:06 PM, AndyH said:

Lou, I don't disagree with your comment, but the regulation adds some uncertainty in my opinion.   From 1.430(d)-(1)(c)(1)(i) below.  If an allocation is forfeited on account of a deemed distribution, does that mean it is not counted under this paragraph, which seemingly exempts benefits paid as of the valuation date?

The timing of the forfeiture seems odd since the benefit was earned during the plan year, start by checking that the document deems it at that time, for an EOY val usually its as of the first day of the following year.  An end of year forfeiture or deemed distribution usually implies that they did not earn an accrual in that year.

Agree that the participant is in the 401(a)(26) count since exceeded allocation conditions, however I would think only benefitting if not deemed at the end of they year.  Vesting has nothing to do with benefitting under 401(a)(26), meaningful is amount only; under 11(g) it becomes part of the substantive condition.