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401(a)(26) and 436


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No.  No.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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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.

 

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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.

 

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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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.

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