401(a)(26) and 436

[Draper55]

If a plan is less than 60% funded so that no accruals can take place can this cause a 401(a)(26) failure? Does it matter if the plan provides for restoration of accruals?

[Effen]

No.  No.

[Mike Preston]

5 hours ago, Effen said:

No.  No.

Yes. No. If I'm understanding.

 

[Effen]

How can a mandatory freeze cause an a(26) failure?  What would the correction be?

[Draper55]

I am hoping that is not the case(an a(26) failure) as well, but do we have any guidance as such?

[Mike Preston]

5 hours ago, Effen said:

How can a mandatory freeze cause an a(26) failure?  What would the correction be?

I agree it should be however I'm not aware of any guidance that specifically exempts 401a26. Are you?the correction is the same sort of correction you would expect in order to avoid a 436 violation. That is, put money in the plan.

 

[C. B. Zeller]

My first thought would be that of course the plan is exempt from 401(a)(26), since there is an exception for plans that do not benefit any HCEs and if the plan is restricted from benefit accruals due to its AFTAP then no HCEs are benefiting so the exception applies.

But if you look at the reg (1.401(a)(26)-1(b)(1)), it says that the exception applies to a plan other than a frozen defined benefit plan which benefits no HCEs. If no one accrues a benefit then you have a frozen plan for this purpose and the exception does not apply. Since no benefits are accruing in the current year you would have to satisfy 401(a)(26) with respect to the plan's former benefit structure, in other words, on an accrued-to-date basis, which could still potentially fail.

 

[Mike Preston]

7 minutes ago, C. B. Zeller said:

My first thought would be that of course the plan is exempt from 401(a)(26), since there is an exception for plans that do not benefit any HCEs and if the plan is restricted from benefit accruals due to its AFTAP then no HCEs are benefiting so the exception applies.

But if you look at the reg (1.401(a)(26)-1(b)(1)), it says that the exception applies to a plan other than a frozen defined benefit plan which benefits no HCEs. If no one accrues a benefit then you have a frozen plan for this purpose and the exception does not apply. Since no benefits are accruing in the current year you would have to satisfy 401(a)(26) with respect to the plan's former benefit structure, in other words, on an accrued-to-date basis, which could still potentially fail.

 

Very nicely put.