Rather than using a state interest crediting rate like 5%, you do have the option to use actual rate of return. But using actual rate of return does have some drawbacks. If there is a negative or low year, we would use that as the projection rate for 401(a)(26) (minimum participation rule) and 401(a)(4) (rate group test), and the lower the rate, the more upfront cost needed to pass these tests. For example, for a 25-year-old employee, a 1% year will require a following year contribution 372.84% higher as compare to a 5% Cash Balance Plan. This can triple or quadruple staff cost to keep benefits equivalent to pass testing. The main point here is that similar money goes to staff through the combination of investment return and contributions. If cumulatively negative return earned over time, the Plan must provide a cumulative floor return of 0% return over time, known as the Preservation of Capital Rule. Therefore, the Employer could have to contribute even more to the Plan to make up for this, whereas the employee does not share in the full extent of the downside risk. If Plan earns 15% return, all participants receive this full credit. Thus, in this case the employees share this full windfall for doing nothing as opposed to the employer being able to use the surplus in the future. As compared to a 5% return Plan, the employer could use this surplus to reduce a future contribution similar to a forfeiture. As a result, we would generally only use the market or actual rate of return for plans with large number of owners/partners and few employees. For plans with one main owner and a handful of employees it is typically not recommended and seldom used.