My company has a cash balance plan in addition to a 401(k), and I’m trying to make sense of some of the numbers. I have official statements as of 1/1/2018 and 1/1/2021 and an unofficial current estimate on the website:
Account balance on 01/01/2018: $79,882
Estimated monthly accrued benefit payable at NRA earned through 1/1/2018 is: $780
Account balance on 01/01/2021: $111,161
Estimated monthly accrued benefit payable at NRA earned through 1/1/2021 is: $671
Current
Monthly Accrued Benefit: $1,974
- How is it possible that my balance goes up 40% from 2018 to 2021, but my accrued benefit went down?
- Is there any world where my accrued benefit actually increased more than 100% in the 3 years after 2021? Contributions are <$10K/year and historically interest is ~2%, so I wouldn’t expect my current balance to be much more than $150K. I could maybe get to a $1100 accrued benefit with that, but not almost $2000.
Is there something behind the scenes of the monthly accrued benefit calculation that can explain either of these (changed mortality table or future investment performance assumptions)?
Edited to add: “Benefits are shown as a straight life annuity.”
Your benefit as an annuity is likely converted from the balance based on 417e interest rates at that time. Interest rates at 2018 were not near zero, and at 1/1/2021 they were rock bottom. The rates are here if you are interested: https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates
So an annuity present value (APV) factor based on high interest rates will be low, and based on low interest rates will be higher. Your account balance is being divided by the APV factor to come up with the annuity equivalent.
If you get a statement as of 1/1/2024, my guess is that your annuity will be quite high. Yes, it could be more than 100% greater than it was at 1/1/2021, because rates were hundreds of bps higher, plus your account balance has presumably continued to accrue. The interest credited to your account balance is codified and not necessarily linked to market rates during that time.
Once you get to 65/NRD, your accrued benefit expressed as an annuity cannot decrease year over year. But before then, it can. I haven’t been an EA in several years, though, so all of this is based on recollection of PPA and ERISA.
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I’ll add that without knowing your plan’s specific provisions, everything I’m saying is just guesswork. But you can request a summary of plan provisions of your plan from your employer if you’re interested in learning the details of the annuity conversion, interest crediting, and other aspects of your plan.
My SPD is available through Fidelity pretty easily, maybe yours is also available electronically somewhere?
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Thanks for the info. My SPD is available on the website, so I can take a look at that.
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