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DC+CB Combo - Short Plan Year & Gateway


Hojo
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The client wanted to move to a calendar year and thus created a short plan year 10/1/2020 - 12/31/2020.  The CB document indicates 1,000 hours required for an accrual so it appears there is no CB accrual during the short plan year.

In this case, I'm assuming we still use the combined plan gateway rules, but there is no CB accrual when generating the required gateway percentage.  

I feel like I'm overthinking this so just looking for clarity.

 

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52 minutes ago, Bill Presson said:

Was there an amendment to actually create the short year for each plan? That usually defines what's going to happen to the accruals.

There was amendment to create the short plan year indicating that there would be no CB accrual.  It's more of a matter of whether the Gateway is for combine plans or the singular PS plan (7.5% vs 5%).

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On 3/22/2021 at 5:13 PM, Mike Preston said:

Doesn't satisfy 411 accrual rules. 

Mike, would you elaborate please?   Doesn't the fact that these changes were a function of a plan amendment provide a fresh start for 411?

 

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I don't know how you can have a short plan year structured in such a way that nobody receives an accrual and satisfy 411. Maybe it can be done but I'd like to see proof.

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If I'm reading Mike's mind correctly (and that's a big if), the concern is that, following the amendment, the accruals in the first plan year are zero, and then something larger than zero in all subsequent plan years. That would not satisfy any of the accrual rules under 411.

If you did it in two amendments: 1) change the plan year and freeze accruals, and 2) reinstate accruals effective the first day of the next plan year, I think that would be ok, or at least better. There is always the question about definitely determinable benefits when freezing and unfreezing DB formulas though.

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Check out the following outline that appears to be authored by Janice Wegesin:

https://www.asppa.org/sites/asppa.org/files/PDFs/2015AnnualHandouts/WS40 - Administrators Rubik Cube Handling Short-Plan Year and Off-Calendar Year Plan Issues.pdf

See the text box on slide 6.

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Thanks for the replies and the link.  Yes I agree there's a 411 issue issue if there is no amendment after the plan year change and there is no credit for the short period. 

So basically the amendment should provide for a proration for a short year if the document is otherwise silent.

 

 

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