Treas. Reg. 1.411(b)(5)-1(d)(2) sets a floor in every cash balance plan: when the benefit is paid, it cannot be less than the sum of the pay credits made to your account. Interest credits can be negative in some years, but by the time money leaves the plan, losses cannot have eaten into the pay credits themselves.
The floor matters most with actual return crediting, where your account moves with the plan's investments. Say pay credits over the life of a plan total $900,000, and a market fall leaves the account at $850,000 when you retire. The benefit is $900,000, and the business must contribute the $50,000 difference.
Three points follow:
- The floor applies when the benefit is paid, not at every year end. In between, the account can sit below the total of pay credits.
- It protects the pay credits, not past gains. Returns earned in good years and later lost are not guaranteed.
- In a one-person plan the business that makes up the difference is your own, so the floor shifts money between your business and your plan rather than bringing in anyone else's.
Actual return crediting is allowed only while the plan's investments are diversified so as to minimize the volatility of returns. See investing cash balance plan assets.