How do you determine the maximum amount you can contribute for an individual in a Cash Balance Plan?

You ask an actuary to do it.



Can you be a little more specific?

I'd love to have an actuary to ask. Just trying to learn this stuff on my own.

hmmmm.... Trying to figure this out.... ok, for a normal db plans, an individual nrb can not be greater then the 415 limit right? and say for simplicity, the participant has a Nrb at 415 limit of say 1000. and the participant has ten years left... the accrual method is fractional... therefore each year the participant accrues $100... that $100 also has a pvab right? what is the requirements to calculate that? is it 100*(Gatt Apr @ 30 year (or 5%) age 62)*(1.05)^65-55 or 62-55....

See how confused I am...

When you look at the cash balance account, which is not identical to the deductible contribution by the employer unless you want it, that account cannot be paid out if it exceeds the maximum 415 limit for a lump sum payment.

So I start with computing the maximum lump sum payment available at the participant's age, taking account of their 100% of 3 year average pay, the actuarial assumptions in the plan document, and the current 417(e) interest rates. This sets a limit on the benefit I can accrue. If you want to learn CB plans, you should learn this calculation.

The deduction follows normal funding rules. I pick reasonable assumptions for funding, consider the effect of existing assets, select a funding method (until 2008), and calculate the plan cost. If I am using a projected funding method such as individual aggregate or entry age normal, then I must also project the maximum benefit available at the plan's normal retirement age for 415 and at the assumed retirement age for funding. Usually they are the same age in small plans.