Comparability Review, where to start?

[Guest Hoard]

It has been several years since I have compared a DB Plan with a Profit Sharing Plan. Where is the best place in the code or Regs to start my review?

[david rigby]

What is the purpose of the comparison? Need some more description of what you are asking and what you are doing with the comparison.

[Guest Hoard]

A Bank with a defined benefit plan became a cortrolled group of corporations with another bank which sponsors a profit sharing plan. Can not look at SLOB because the Bank with the DB Plan has less than 50 employees. Need to compare the two plans? Where is the best place to start.

[david rigby]

good start.

"Comparing" can mean several things, such as coverage (percentage and types of EEs covered by any plan), or benefits (level of total benefits).

I'm still not sure what you are asking.

[Guest Hoard]

Since the Plans are of a controlled group of corporations I believe they have to be tested under 410(B). If they fail the percentage test (it probable will) I can then look at the plans under an average benefits test.

If they continue to fail what do I do?

Reduce contributions to one of the PS Plans until I pass the test. I believe that this process will than need to be repeated each year. Bank 1 has a DB and a Profit Sharing. Bank 2 has a PS tha has been funded at between 13% and 15% each year.

[david rigby]

the coverage test of IRC 410(B) looks first at percentages of EEs covered by a plan, without regard to whether the multiple plans are comparable.

If the % test is not passed, then you use the average benefits test, which does look at the level of benefits (using an "average benefit percentage").

If you fail that test, you fail. You may be able to pass either by adjusting the ratio test, or the average benefits test, but not necessarily both.

but don't forget the SLOB rules under IRC 410(B)(5). You stated that this is a controlled gorup of banks, so normally that would exclude a SLOB, but I think there is also a special SLOB exception where the business is geographically distant from the rest of the controlled group, so that it might be a SLOB on that basis (please check this). If you don't have a SLOB, then the expansion of the coverage may be the easiest way to deal with this.

[This message has been edited by pax (edited 02-10-99).]

[Hoard1]

SLOB may not work because Bank 1 has less than 50 employees. I will look at the exemption your suggested. Pardon my confusion, as long as the individual Plan passes coverage under 410(B) you do not have to look at coverage for all of the plans combined. So, if you had a controlled group of two corporations one with a 401(k) Plan with no ER contribution and the other with a PS Plan with 15% annual contribution as long as indivudual Plans pass 410(B) you are ok for coverage. My impression was that you had to aggregate the plans for your testing employee group and than test each individual plan based on the agregated HCE & NHCE. For example Plan 1 has 5 HCE and 15 NHCE and Plan two Has 3 HCE and NHCE. To test for 410(B) Plan one would be 5/8 or 62.5% and 15/30 or 50%. Plan two would be 3/8 and 15/30 for HCE and NHCE respectively. Under this example the Plans would pass coverage. What are your thoughts?

[Guest Keith N]

Assuming that you have complied with 401(a)(26), then I think your right. You need to test 410(B) on an aggregated basis and as long as each plan has a ratio percent greater than 70% (or much lower if using average benefits test) your home free in 410. Then of coarse you move on to 401(a)(4).

[Hoard1]

What is the process to test under 401(a) 4?

[Hoard1]

From looking at 401(a) 4 it seems that the only way to test Plans of controlled groups of corporations with both DB and DC401(k) Plans in the controlled group is under the general test for DB Plans or Cross testing. Any thoughts?

[Guest Keith N]

To simplify, IRC Section 410(B) is used to determine if the Qualified Plans of a given employer cover a sufficient amount of employees. IRC Section 401(a)(4) then looks at each individual Plan to insure that it does not discriminate in favor of HCE's.

From the sounds of your earlier posts, your two plans may be safe harbors under 401(a)(4). If they are, then there is no need to aggregate them. If any of them are not safe harbors, you would be required to do a general test, which requires you to aggregate them and puts you back into 410 for the Average Benefits Test.

It gets fairly complicated, more than I care to discuss on this board.

[Hoard1]

Thanks for the help.