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AndyH

Plan amendment and 133% accrual rule

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Have an  antique integrated DB plan of .75% of average comp +.50% of average comp > $10,000, max 35 years.

Sponsor wants to increase benefits by not more than 10% while keeping it simple and maintaining safe harbor status.

Thinking about amending the plan to add to the existing formula effective 1/1/2019 2% of average comp x Years of service prior to 1/1/2019 limited to 5 years.

This provision seems to violate the 133% rule.  Or is it ok because it is due to an amendment and would be ok for every year of service starting 1/1/2019?

If not ok, any other ideas (within the objective of a safe harbor formula)?

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For purposes of the 133-1/3 rule, plan amendments are treated as if they were always in effect. In other words, the new formula is not tested against the old formula, but only against itself.

See 411(b)(1)(b)(i) for reference.

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Thanks for the reply.  The cite says

any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years;

 
It is not obvious to me that this exempts the fact that the current year accrual is more than 133% of the prior year accrual.  How do I get past that?

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If I'm understanding you correctly, the new formula grants an additional 2% of average comp per year of service up to 5 years as long as those years were completed prior to 1/1/2019. Since the formula is treated as being in effect for all plan years, for this purpose the extra 2% per year would be treated as accruing in the employee's first 5 years prior to 2019 - not in the current year.

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Right.  So I guess it is frontloading not backloading from that perspective.  Thanks.

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