| FAQ 756: Cash Balance - calculation of projected benefit |
Can you tell me how the projected benefit is calculated for a cash balance plan?
The projected benefit is calculated by assuming that the current "expected contribution" is continued to retirement and that the interest on those contributions accumulates at the current interest rate. The projected balance is then added to the projection of the current account balance and the total is divided by the annuity rate using the cash balance current interest and mortality assumptions. The resultant projected benefit is then adjusted as may be appropriate for 415 or for top-heavy minimum. If there is a salary scale, future compensation-based contributions are increased yearly by the salary scale.
Refer to FAQ 937 for an illustration of how to use the Assumed Future Interest Rate to change the projected benefit.