Cash Balance Plan - In-Service Distribution (Rollover to IRA) Permitted?

Hi. We have a Cash Balance Plan. A participant has asked about in-service distribution (rollover). Specifically, he is asking if he makes a contribution in 2023, and reaches age 59 1/2 in 2024, can he rollover the funds into a traditional IRA as an in-service distribution and continue to participate in the plan. 

My understanding is that this is not permissible. This seems like it would directly go against the concept of a cash balance plan and almost treat it like a 401k. But my understanding of cash balance plans is definitely lacking. The participant says he has been told by others that this is allowed. Can anyone help?

The plan has to allow it, but DB plans were recently allowed to drop their ISW age to 59½.  401(a)(36), I think added by the Miners Act.

it is allowed if it is allowed by the Document.  It is a benefit/right/feature so proceed accordingly if it is not owners-only plan.

Forgive my ignorance. All of the replies suggest that this is permissible if the Plan Document permits. However, I thought that the IRS preferred a minimum of a 3-year cycle for participant contributions. Doesn't this violate that rule if a participant can immediately take an in-service distribution so that he can control his investments in an IRA? All at the same time, he is continuing to actively participate in the cash balance plan and receive contributions?

What am I missing here? Why is the participant making the contribution unless is the owner?

Is the balance vested to be rolled over?

As Corey stated, MASD may be a big issue especially if the participant is at 415 limit. Also, if at 415 limit then may not be getting any additional allocation, all facts and circumstances.

Also, as Corey stated, you need to check the AFTAP certification - 436 rules and also do the 110% test, if the participant is HCE.

The document has to allow it.

Just my 2 cents

13 hours ago, Jakyasar said:

What am I missing here? Why is the participant making the contribution unless is the owner?

 

My mistake - eligible employees elect whether to participate and how much they want to contribute annually for a 3-year cycle. The employer makes the contributions. This particular participant is an HCE.

On 11/11/2023 at 7:38 AM, waid10 said:

eligible employees elect whether to participate and how much they want to contribute annually for a 3-year cycle

Careful here - what happens if the employee (presumably these employees are partners or otherwise individuals significantly contributing to the production of the business) chooses not to participate or chooses a smaller contribution? Do they get that amount in cash (or in the case of a partner, earned income) instead? In other words, does making an election to receive a contribution result in a corresponding reduction in their compensation (and if it doesn't, why would anyone choose not to participate or choose a contribution level less than the maximum legal limit)? This sort of arrangement could result in a deemed CODA, and could disqualify the DB plan.

To add what Corey very clearly stated:

If the employee(s) are not owners, it is not up to them to be included/excluded unless the document provides a one irrevocable election for not participating. Be careful though, it means nothing as they will be included in all testing. Also, some employers negotiate a payment package with their prospective employees who are not owners. I personally frown upon on this but there are some out there state that it is ok as part of payment package. In essence you are asking the employee to fund their own pension plan, hmmmmm.

There is also a big difference between electing not to participate and electing not to contribute. Assuming to are referring to owners/partners, electing not to participate is fine but electing not to contribute when you are already a participant, may not fly here. This can be a big issue in a partnership.

This is not a 401k election you are referring to here, you have to be very careful what and if you allow the client to do. Be very careful with your wording, if I may suggest.

Either you are in or excluded categorically.

another 2 cents of mine.