Anonymous
timer Asked: May 1st, 2020

Question Description

Cash Balance Plan Fact Sheet

Type: Pension Plan, defined benefit

Funding: Mandatory funding each year based upon an actuary

Investment risk – born by employer

Max funding: Depends on amount actuary calculates

Max benefit: $225,000 per year

In service withdrawals – not allowed

Allocation of Forfeitures – can only be used to reduce plan costs

PBGC Insurance – Yes required for plans with more than 25 people

Credit for prior service – yes can be given when a new plan starts

Integration with Social Security – Excess and Offset methods are both allowed

Separate investment accounts – no funds are commingled, and payment depends on the company still being in business.

Vesting: 3 year cliff vesting must be used, no other options are allowed.

Top Heavy plans (60% of benefits going to key employees)– must provide at least 2% per year of service.

Eligibility: Standard eligibility rules apply. 1 year of service, 21 years of age, etc.

Insurance: Insurance can be part of the plan benefit. 100x limit, 25% of contribution limit

Employer stock: 10% of contribution can be in employer stock

Who benefits the most: plan favors young people.

Payout upon retirement: Must offer a Joint Survivor Annuity as the default payment plan.

Formula for calculating the benefit: can be flat amount, flat percentage, and unit credit. Most use the unit credit which looks like Percentage rate per year x number of years of service x the average of the three highest years of salary.

Other: Can be structured to benefit owners and higher compensated employees under certain circumstances.

In addition to these facts for each type of account I would highlight the things that are unique. In this case 3 year cliff vesting.

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Cash Balance Plan Fact Sheet Type: Pension Plan, defined benefit Funding: Mandatory funding each year based upon an actuary Investment risk – born by employer Max funding: Depends on amount actuary calculates Max benefit: $225,000 per year In service withdrawals – not allowed Allocation of Forfeitures – can only be used to reduce plan costs PBGC Insurance – Yes required for plans with more than 25 people Credit for prior service – yes can be given when a new plan starts Integration with Social Security – Excess and Offset methods are both allowed Separate investment accounts – no funds are commingled, and payment depends on the company still being in business. Vesting: 3 year cliff vesting must be used, no other options are allowed. Top Heavy plans (60% of benefits going to key employees)– must provide at least 2% per year of service. Eligibility: Standard eligibility rules apply. 1 year of service, 21 years of age, etc. Insurance: Insurance can be part of the plan benefit. 100x limit, 25% of contribution limit Employer stock: 10% of contribution can be in employer stock Who benefits the most: plan favors young people. Payout upon retirement: Must offer a Joint Survivor Annuity as the default payment plan. Formula for calculating the benefit: can be flat amount, flat percentage, and unit credit. Most use the unit credit which looks like Percentage rate per year x number of years of service x the average of the three highest years of salary. Other: Can be structured to benefit owners and higher compensated employees under certain circumstances. In addition to these facts for each type of account I would highlight the things that are unique. In this case 3 year cliff vesting. ...
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