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Frozen Plan and 401(a)(26)

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A frozen DB Plan (hard freeze) that is not covering enough active employees to pass 401(a)(26) can add a new participant (if all that is needed is one more participant to satisfy 40%) and give a .5% accrual for the current year as is suggested above. I have seen this solution being advised on numerous occasions. Can someone please help me understand this method, as if the plan is frozen how is this (minimal) accrual being given to a new participant (and all current participants are not given an accrual for the current year)? Is it allowed as a special corrective measure? If yes, is an amendment required stating that " an accrual of .5 will be given to a new participant to comply with 401(a)26)"? Thank you in advance for shedding light on this topic.

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A hard frozen plan - or any DB plan in which no HCE benefits - satisfies 401(a)(26) automatically, provided you aren't giving any cost of living increases or adjusting benefits for increases in the 415 limit. You shouldn't need to do this.

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The exception for frozen plans applies only if the plan is an underfunded PBGC-covered plan or an underfunded non-top heavy plan. Whether there are HCEs in the plan is irrelevant.

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8 hours ago, unfunded said:

The exception for frozen plans applies only if the plan is an underfunded PBGC-covered plan or an underfunded non-top heavy plan. Whether there are HCEs in the plan is irrelevant.

Thank you Unfunded and CuseFan for your help. The plan is not underfunded and therefore we will add a new participant (to cover 40%) and give a benefit of .005 for the year of participation. Question: Since the plan is hard frozen should this benefit that is being given to the new partic[pant be shown as a benefit that was there already as of the beg. of the year (funding target-sort of a correction to pass 401(a)(26)) and not as an increase (and no TNC), as since the plan is hard frozen and there are no accruals to the rest of the participants, it seems strange to have this new participant getting an increase ? Thank you

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2 hours ago, SSRRS said:

Thank you Unfunded and CuseFan for your help. The plan is not underfunded and therefore we will add a new participant (to cover 40%) and give a benefit of .005 for the year of participation. Question: Since the plan is hard frozen should this benefit that is being given to the new partic[pant be shown as a benefit that was there already as of the beg. of the year (funding target-sort of a correction to pass 401(a)(26)) and not as an increase (and no TNC), as since the plan is hard frozen and there are no accruals to the rest of the participants, it seems strange to have this new participant getting an increase ? Thank you

It would be greatly appreciated if someone could shed light regarding the above. Thank you

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How it is shown is based on the timing of the amendment (after val date or before val date: that is, it is a BOY or EOY val) along with whether, if applicable, a 412(d)(2) election is made.  Ask the plan's actuary.

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On ‎11‎/‎8‎/‎2018 at 11:23 PM, Mike Preston said:

How it is shown is based on the timing of the amendment (after val date or before val date: that is, it is a BOY or EOY val) along with whether, if applicable, a 412(d)(2) election is made.  Ask the plan's actuary.

This is from a while ago, but if possible, I would really appreciate more clarity on this. 1. If we are doing EOY Vals,  would the accrual of .5 % for year of participation  that would be given to a new participant (to cover 401(a0(26)) be shown in the FT only (as an A/B that was there as  of beg of the yr. and no increase) or that there was zero A/B at the BOY and the .5% accrual as an increase (and shown in the TNC -and there would be no FT for this new partc.) 2. If it is shown as a Benefit increase and a TNC --if the plan is hard frozen, how is this done, is it a special corrective method that is allowed even though the plan is frozen? Or is the idea that that the plan formula is being amended to a .lower  formula of .5% per yr of participation -with wear away- and therefore the net result is that only the new participant is getting an accrual of .5% for the current year since the benefit that the others have accrued until now is in excess of  this  new formula of .5% pr year of participation?   Thank you very much.

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On ‎11‎/‎9‎/‎2018 at 10:56 AM, SSRRS said:
On ‎11‎/‎8‎/‎2018 at 11:23 PM, Mike Preston said:

How it is shown is based on the timing of the amendment (after val date or before val date: that is, it is a BOY or EOY val) along with whether, if applicable, a 412(d)(2) election is made.  Ask the plan's actuary.

 

On ‎11‎/‎9‎/‎2018 at 10:56 AM, SSRRS said:

This is from a while ago, but if possible, I would really appreciate more clarity on this. 1. If we are doing EOY Vals,  would the accrual of .5 % for year of participation  that would be given to a new participant (to cover 401(a0(26)) be shown in the FT only (as an A/B that was there as  of beg of the yr. and no increase) or that there was zero A/B at the BOY and the .5% accrual as an increase (and shown in the TNC -and there would be no FT for this new partc.) 2. If it is shown as a Benefit increase and a TNC --if the plan is hard frozen, how is this done, is it a special corrective method that is allowed even though the plan is frozen? Or is the idea that that the plan formula is being amended to a .lower  formula of .5% per yr of participation -with wear away- and therefore the net result is that only the new participant is getting an accrual of .5% for the current year since the benefit that the others have accrued until now is in excess of  this  new formula of .5% pr year of participation?   Thank you very much.

If it is possible to help give clarity on the above it would b e greatly appreciated. I went back and edited the above. Thank you very much.

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This is from a while ago, but if possible, I would really appreciate more clarity on this. 1. If we are doing EOY Vals,  would the accrual of .5 % for year of participation  that would be given to a new participant (to cover 401(a0(26)) be shown in the FT only (as an A/B that was there as  of beg of the yr. and no increase) or that there was zero A/B at the BOY and the .5% accrual as an increase (and shown in the TNC -and there would be no FT for this new partc.) 2. If it is shown as a Benefit increase and a TNC --if the plan is hard frozen, how is this done, is it a special corrective method that is allowed even though the plan is frozen? Or is the idea that that the plan formula is being amended to a .lower  formula of .5% per yr of participation -with wear away- and therefore the net result is that only the new participant is getting an accrual of .5% for the current year since the benefit that the others have accrued until now is in excess of  this  new formula of .5% pr year of participation?   Thank you very much

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