Defined Benefit/Defined Contribution Combos

• Special design options are available which provide for multi-tiered benefit formulas under the defined benefit plan combined with contributions to a profit sharing plan
• Combined plans must pass certain coverage and non-discrimination tests.
• 401(k) features can be added.
• 25% combined plan limit applies only if the contributions to the defined contribution plan exceed 6%.  Starting in 2008, 25% combined plan limit will not apply if the defined benefit plan is covered by the Pension Benefit Guaranty Corporation.

Cash Balance Plans or Cash Balance/Defined Contribution Combos

• Cash Balance Plans are operated like defined contribution plans but are actually treated under the Internal Revenue Code as defined benefit plans.
• Participants receive statements that look like a defined contribution statement with a beginning balance, contribution credits, earnings credits and an ending balance.  Accounts are, however, hypothetical and the assets are pooled and not actually divided into separate accounts.
• The employer contributes to the plan based on the results of an actuarial valuation, utilizing specific actuarial assumptions, contribution rate(s) and specific rate of earnings under the plan.  Contribution is not based on the sum of the contribution credits reflected in the participant statements.
• Contributions are mandatory and the plan is subject to minimum funding rules.
• Use of an interest crediting rate not greater than a “market rate of return” is now required.  Negative interest credits may not result in an account balance less than the aggregate amount of contributions credited to the participant’s account.
• 3-year cliff vesting schedule required for all new cash balance plans.
• Special termination rules apply for determining accrued benefits.
• Cash Balance Plans can be combined with 401(k) Plans.
• 25% combined plan limit applies only if the contributions to the defined contribution plan exceeds 6%.  Starting in 2008, 25% combined plan limit does not apply if the defined benefit plan is covered by the Pension Benefit Guaranty Corporation.