3670. What rules apply for converting a traditional defined benefit plan to a cash balance plan?polearyrcline202005-04-08T19:45:00Z2015-07-14T19:18:00Z2015-07-14T19:18:00Z11851059Hewlett-Packard Company821242142007-10-05T00:00:00ZTaxFactsDefaultArticleSite Map/Life Insurance/Income Taxation/Proceeds/Living/Disposition/Sale or Purchase of a Contract115140262-00-tf1.xml263.00;#2099;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1If the owner of a life insurance or endowment contract sells the contract, such as in a life settlement, what are the income tax consequences to the seller?74200.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:41:49Z3670. What rules apply for converting a traditional defined benefit plan to a cash balance plan?A traditional defined benefit plan that is converted to a cash balance plan is subject to certain rules on the crediting of participant benefits. The plan’s benefit after conversion must not be less than the sum of the participant’s accrued benefit for years of service before the conversion under the prior formula, plus the benefit the participant earns under the new formula for service after the conversion..IRC Secs. 411(b)(5)(B)(ii), 411(b)(5)(B)(iii), effective for conversions occurring after June 29, 2005. This formula is known by actuaries as an “A+B” approach. The A+B approach is designed to eliminate a plan issue referred to as “wearaway,” which refers to situations where certain participants in the plan do not accrue any additional benefits until benefits under the prior plan are worn away to equal benefits under the new plan. This occurred in some conversions where older employees might not accrue additional benefits under the cash balance formula until their new hypothetical account balance caught up with their prior accrued benefit. Requirements for calculation of the present value of a participant’s accrued benefit are set forth in IRC Section 411(a)(13)(A) (effective for distributions made after August 17, 2006).