IRC 430(d) defines the funding target as the present value of all benefits accrued or earned as of the start of the plan year. In a cash balance plan the benefit is the account, so the actuary projects your account to retirement with future interest credits and discounts it back to today at the segment rate for that horizon (Treas. Reg. 1.430(d)-1(f)(5)).
Comparing it with the plan's assets drives each year's range:
- If assets are below the funding target, the shortfall is spread over 15 years and added to the normal cost to give the minimum required contribution.
- If assets are above it, the excess reduces the minimum, down to zero.
- The maximum deductible contribution is the funding target plus normal cost plus a cushion of 50% of the funding target, less assets.
In a new plan that grants no benefit for years before it started, the funding target on the first day is zero, and the first year's contribution is essentially that year's normal cost. The funding target then grows each year as benefits accrue, and so does the room above the minimum. See minimum contributions and lean years.