Dougsbpc

Tymesup Thanks for your comments. In this plan the same benefit formula would be used as prior to the freeze. I think 1.401(a)(4)-5 permits a safe harbor for an amendment that credits benefits attributable to prior years. I believe it allows up to 5 prior years.

Do you mean the amendment to resume benefit accruals? Suppose the full DC account balance were used for the offset but no participant grandfathered accrued benefit was reduced when the plan was frozen. Also both plans are general tested on an accrued to date basis and pass the year benefit accruals resume. The only choice in the document for an offset DB is to offset the benefit by the act. equiv of the vested account balance in the DC plan.

Suppose you have a DB plan that is offset by the employer account balance in a PSP. Then lets say the DB plan is frozen for two years and then unfrozen. When the DB plan is unfrozen can the full employer account balance in the PSP be used as the offset? Keep in mind contributions to the PSP continued when the DB plan was frozen. I would think the DB accrued benefit when frozen would have to be grandfathered otherwise you would have a 411(d)(6) violation. But once benefit accruals resume, could the full account balance be used for the offset provided that offset never reduced the grandfathered accrued benefit from when the plan was frozen? For example, a participant accrues a benefit of $1,000 / mo for 4 years. AB = $4,000 reduced by act. equiv. of PSP account of $900, adjusted AB = $3,100. DB plan is then frozen for 2 years with a grandfathered AB of $3,100. When the plan resumes accruals (after the first year), AB = $5,000, act equiv of PSP account is now $1,400 leaving an adjusted AB of $3,600.

Generally, we find the answer book series to be an excellent first resource on many plan issues. The interpretations seem to be sound and they always provide sites for reference. I recently read something in the Plan Termination Answer Book that surpised me. It read as follows: "Regardless of the magnitude of the operational defect, any defect that occurred outside the statute of limitations can be ignored" It seems to me that a plan could be currently disqualified as the result of a prior operational defect even if it occurred outside the statute of limitations as that defect may lead to a current benefit that is incorrect. Does anyone have an opinion on this?

Salary deferrals to a 401(k) plan are technically considered employer contributions. Does anyone know if salary deferrals are considered employer contributions in a 401(k) plan that may have a horizontal partial plan termination? For example, if an employer sponsors a 401(k) plan and has made substantial profit sharing contributions for years, then quit making profit sharing contributions for the past three years. Are salary deferrals considered employer contributions for purposes of determining whether a horizontal partial plan termination has happened?

Mike, I could not find a cite that directly addresses this. Our inclination is to always have the DC plan (that offsets the DB) to operate like a Money Purchase plan as much as possible (normal form of benefit as annuity etc). I know hardships are not allowed in a MPP.

No. Salary deferrals are not used for the offset. This cannot be done. They would like to be able to withdraw salary deferrals and profit sharing.

A small employer sponsors a defined benefit plan that is offset by employer contributions in a 401(k) plan. They would like to add a hardship provision to the 401(k) plan. Even though a 401(k) plan on its own can have a hardship provision, I dont believe it can when it is being used to offset benefits in a DB plan. Perhaps the plan can allow in-service distributions but only at NRA. Does anyone disagree with this?

Mike, Thanks for pointing out the special document language. We had a chance to review the document and think it may contain the auto 411 language. Here is what it says: No amendment to the plan (including any change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a participant's accrued benefit derived from employer contributions. For purposes of this paragraph, an amendment shall be treated as reducing the accrued benefit of a participant if it has the effect of (i) eliminating or reducing any early retirement benefit or a retirement-type subsidy; or (ii) except as provided by Treasury Regulations, eliminating an optional form of benefit, with respect to benefits attributable to years of service BEFORE the amendment. It seems this language may allow an amendment to increase the NRA as long as accrued benefits (or optional forms of benefits) are not taken away with respect to years before the amendment. So perhaps as you mentioned, the participant retains the right to an in-service distribution for benefits already accrued, through the original NRA and future accruals would be payable on the later NRA.

Thanks for all the replies. This is all very helpful. I will check the document to see if it contains the auto 411 language. If so, then it sounds as though the valuation is done based on age 60 NRA, but the participant retains the right to an in-service dist of his accrued benefit earned through the date of the amendment. Effen If a plan used a later assumed retirement age (for example age 59 to age 60), would the participant have to be fully accrued at age 59 or 60 under a fractional accrual method?

This plan was amended for a higher NRA (from 59 to 60) prior to May 21, 2007.

Other than the special ability to increase the NRA under notice 2007-69, could a single participant-owner DB ever amend the plan to have a higher NRA without violating 411(d)(6)? He is already 100% vested and his accrued benefit would be properly adjusted. It appears that simply postponing the ability to have an in-service distribution from the initial NRA to the higher NRA would violate 411(d)(6) and he couldnt do it. Is it somehow possible to preserve the ability to have an in-service distribution at the earlier NRA? Hypothetically, what if the plan did not allow for in-service distributions at NRA? Then could it be done without it being considered a cut back?

Yes. That is what I am saying. In this particular case we did not get a letter, but in every future offset DB we certainly will.

We know better now to get a DL on any floor offset plan. If the method of correction is to provide .5% after the offset for that first year, that would not be so bad as there are only 7 eligible participants. I could be wrong, but I would think providing .5% after the offset to three participants would allow the plan to pass 401(a)(26) as 40% of eligible participants would benefit. I know this issue is still not settled, but I cant imagine the IRS ever allowing no offset for certain participants (HCE's in this case).

We administer a floor offset DB that provides 5% of pay per year to group A (stockholders) and .5% of pay to all others (group B). The offsetting plan (a 401(k) plan) provided a 10% uniform nonelective contribution for all years except the first year (5 years ago). In that first year, the two stockholders (who are group A participants in the DB) received no nonelective allocation in the 401(k) plan. All benefits except those in group A are fully offset. Therefore, the DB plan fails 401(a)(26) for that year because a uniform allocation was not made in year 1. We are looking to correct this through VCP. Should we attempt to provide a .5% benefit AFTER the offset to group B in the DB or provide the 10% nonelective contribution in the 401(k) to stockholders, thus creating a uniform allocation. Our understanding is that any additional contributions for a closed year are not deductible. Thanks much for any comments.

Does anyone think just having cross-tested language in the DC plan would prevent the DB from passing 401(a)(26)? The last sentence in the memo indicates "or an amount necessary to provide a uniform benefit". Suppose your DC had allocation groups 1 and 2, but in operation you always provided 10% of salary to both groups 1 and 2 (i.e. all participants receive the same percentage of salary). Would this fail 401(a)(26) just because you have different allocation groups in the DC document?

Mike and Jay, thanks for your comments. In this case it is simply a matter of the employer originally just wanting a cross-tested profit sharing plan. They signed the document and a few months later (within the same taxable year) they decided to adopt a floor-offset DB. We never changed the allocation method in the psp whereby each eligible employee was his/her own group. Each year the employer contributed 10% of salary to all eligible employees (uniform allocations). The DB plan provides 6% of pay per year of participation for group A and 1% of pay per year for group B. The plans have passed 401(a)(4) and 410(b) each year. The DB plan covers more than 40% of all eligibles. Mike, out of curiosity, suppose as Jay mentioned, a non-uniform allocation were made in year 1 to the profit sharing plan in a situation like this. Also, suppose the 1% of pay benefits are fully offset. I would think then 1.401(a)(26)(5)(2)(iii) would not be satisfied and the DB plan would fail 401(a)(26). Would this type of failure ever be correctable?

Has anyone ever received a DL where DB benefits were offset by a profit sharing plan that has tiered language? In this case, the employer originally had the intent of just having a profit sharing plan but then adopted a floor offset DB plan later that year. The PSP was never amended to have comp to comp allocations. However, in operation, the plan always provided uniform allocations each year.

I know this has been beaten to death, but my understanding is the following: An employer may deduct up to 150% of UCL in its defined benefit plan for the plan year beginning 1/1/2006 even though it also maintains a 401(k) Profit Sharing plan. However, only salary deferrals were made to the 401(k) plan in 2006. Also, the DB has been in existence with all HCE's participating for over two years. Also, there has been no HCE benefit increase in the DB plan in the past two years. Does the fact that the 401(k) plan contains profit sharing money from 5 years ago disqualify the DB from the 150% of UCL deduction?

The intent here is to simply provide better benefits to employees. The only HCE is the 100% stockholder of the corporation that sponsors the plan. They are now a very profitable company and the owner wants to reward past employees as well as future employees by having more rapid vesting.

We have a client that sponsors a small DB plan with 15 participants. They have a 2-20 vesting schedule and would like to provide a more generous schedule (1 year 25%, 2years 50%, 3 years 75%, etc). In addition, they wish to make this schedule effective back to 2002. Is it possible to amend a plan to provide more generous vesting retroactively? They have only ever had 4 terminess who were all partially vested and dont mind paying additional benefits.

An employer (company A) sponsors a 401(k) plan that has always been top heavy. They have always made the 3% top heavy minimum. Their last plan year end was 6/30/2006. 100% of the company was purchased on 8/31/2006 by another larger company (company B) that also sponsors a 401(k) plan. The company B 401(k) plan is not close to being top heavy. Company B now sponsors two 401(k) plans, the former company A plan and the company B plan. Both plans are required to be aggregated for 416 purposes since both plans are now sponsored by one company. If they are aggregated they are not close to being top heavy. Question: is a top heavy minimum contribution required in the (former company A plan)? We think yes because the top heavy determination date would be 6/30/2006 and the company was not purchased until 8/31/2006. Does anyone disagree with this? Thanks much.

Thanks everyone for all the replies. In reading the final regulations (specifically 1.415(f)-1(f)(2)), it appears that a participant considered to be "in control" of the contract is aggregated for 415 purposes. The 403(b) is considered a defined contribution plan. I can see where this would impact an employer who sponsors a DC plan. Since 415(e) was repealed several years ago, how would this have any impact on a DB? For example, suppose a University prof retired 5 years ago and now started a profitable business. He had a 403(b) at the University and now wants to adopt a DB plan through his new corporation.

Are benefits accrued under a govermental pension required to be aggreated with pension benefits under a private sponsored DB? It would be great if anyone had a site on this.

Can attorney fees be paid from qualified plan assets? This employer really needs direction / opinions from an ERISA attorney. The company may not have the resources to pay those fees but the pension plan will have excess assets.