McKay Hochman - Commentary

Charts

Comparison of Age-Weighted, Defined Benefit and Cash Balance Plans

July 7, 2006

FEATURES	AGE-WEIGHTED PROFIT SHARING	DEFINED BENEFIT	CASH BALANCE
Eligibility
Age	21	Same as Age-Weighted	Same as Age-Weighted
Service	1 year, or 2 years with 100% vesting	Same as Age-Weighted	Same as Age-Weighted
Classification	Union & non-resident aliens	Same as Age-Weighted	Same as Age-Weighted
Other exclusions	Yes, if plan satisfies §410(b)	Same as Age-Weighted	Same as Age-Weighted
Participation [401(a)(26)]	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE

Lesser of 40%, OR 50 employees	N / A	Yes	Yes
Benefits	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE

Amount	Value of account	Plan formula	Hypothetical Acct. Value
Permitted Disparity	Imputed permitted disparity	Yes, DB	Yes, DC
Past Service Credit	No	Yes	Yes
Minimum Funding	No	Yes	Yes
Accrual rate	Uniform	Uniform	Front Loaded
Ease of Participant Understanding the Benefit	Excellent	Fair	Excellent
Investment Risk	Employee	Employer	Employer
Subsidies	No	Yes	Generally, no
Death	Value of account	Survivor Annuity	Value of account, payable as annuity if no spousal consent.
Limitations	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE

Contributions	100%/$44,000 in 2006	N / A	N / A
Benefits	N / A	100% of compensation / $175,000 (2006)	100% of compensation/ $175,000 (2006)
Contributions	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
ER Contributions
Amount	Discretionary	Minimum Funding Requirements	Same as DB
Employee Contributions
Rollovers	Yes	Yes	Yes
Pre-tax or Roth	Yes	No	No
After-tax	Yes	Usually no (never allowed in prototype plans)	Same as DB
Participant Accounts	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
	Show value of participant's benefit	N/A	Show value of participant's benefit
	Actual allocation of plan assets	N/A	Hypothetical allocation of contributions and investment earnings
401 (a) (4)	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
Nondiscrimination Rules	Yes, under Cross Test 401(a)(4)-8	Yes	Yes, under Cross Test 401(a)(4)-8
Safe Harbor	N/A	Yes 401(a)(4)-3	No
Funding	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
Employer Contributions	Discretionary	Minimum Funding Standards	Minimum Funding Standards
Actuary	No	Yes	Yes
Unfunded liabilities	No	Yes	Yes
Overfunded Potential	No	Yes	Yes
Conversion to Cash Balance Plan	N/A	Due to pending legal actions in federal court, the ability to convert existing defined benefit plan to a cash balance plan without causing a violation of age discrimination laws is in doubt. This does not affect a new cash balance plan.	N/A
Investments	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
Pooled	Yes	Yes	Yes
Employee directed	Possible	No	No
Loans	Yes	Generally no	Generally no
Distributions	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
Hardship	Yes	No	No
In-service	Yes	After Normal Retirement Age	After Normal Retirement Age
Early retirement	Yes	Yes	Yes
Disability	Yes	Yes	Yes
Late	Yes	Yes	Yes
Termination	Yes, immediate payment	Yes, deferred payment	Yes, immediate payment
Form of Payment	AGE-WEIGHTED	DEFINED BENEFIT	CASH BALANCE
Normal	Lump Sum	Annuity	Annuity
Optional Installments	Yes	Generally, no	Generally, no
Lump Sum	N / A	Generally, no	Yes
Vesting	Statutory Schedules	Same	Same
PBGC	No	Yes	Yes

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