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Possible Takeover


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Received a referral on a cash balance as well as a 401(k) plan. Cash balance no eligible employees (presumably), 401(k) remains to be seen.

My first question to him is the 401(k) "handled" by a payroll company as I refuse to takeover any such plan.

Secondly, ADP has no knowledge of the cash balance plan.

Third, the cash balance is on a 10/1-9/30 plan year; the 401(k) is calendar.

Regardless of different plan years, granted they need to be aggregated for deduction purposes; don't the plan need to be tested together for 401(a)(4) ?

Seems like a loss leader.

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If the cash balance plan passes coverage and nondiscrimination on its own, then it does not need to be combined with the DC plan for testing. Practically the only way I can see that being possible would be if there were no employees that met minimum age and service conditions. Maybe the CB plan uses 2-year eligibility, to keep some more people out. If there are any employees who did meet minimum age and service, the CB plan would fail 401(a)(26).

The combined deduction limit only applies if the DB plan is exempt from PBGC coverage (which, if it only covers the owner, it would be exempt), and if the deduction taken for employer contributions on the DC plan exceeds 6% of compensation.

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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