Aggregate DB and DC for 401(a)(4) and 410(b)-What are the issues?

[AndyH]

I asked this question before here but did not get any responses, so I'm hoping that this time I will.

Situation is inherited business and inherited (50 life) DB plan which was continued for employees. They also have an employee deferral-only K plan.

The owners want to make up for not having compensation ($375k-$200k) covered in plan. I've determined that this could be done through a QSERP, but don't want to increase DB obligations with interest rates so low and market so bad.

Instead of QSERP, want to consider DC plan covering just the two owners, with annual contributions for each of maybe $25,000. Plan would be aggregated with DB for testing. I've determined that the (a)(4) test would pass.

Anybody see problems or complications with this? Seems to be exempt from gateways; BRF seems to not be a problem. Comments please. Thanks.

[Guest Keith N]

If the DC only covers the owners, how can you be exempt from the gateways? The DC can't pass 410 or 401(a)(4) w/out aggregating with the DB, once you aggregate with the DB, I think your at least a DB/DC arrangement which carries it's own minimums.

I need to look closer at the Regs, this is just my initial reaction.

[AndyH]

Interesting reaction, thank you, but I don't think that the gateway is a problem because the arrangement is "primarily defined benefit in character", meaning within the final regulations, that for more than 50% of NHCES benefitting, the normal accrual rate attributable to DB benefits exceeds the EBAR of DC contributions (since the NHCE EBARs are all 0%).

So, as I read it, this would be exempt from the gateways.

[jpod]

You may wish to think about whether the timing of the establishment of a second plan could raise any issues under Section 1.401(a)(4)-5 of the regulations.

[AndyH]

jpod, I don't see how that could be a problem. Could you elaborate? There are no NHCEs affected by the new plan.

[Guest Keith N]

It seems to me that as long as your combined plan still complies with 410(B) (Non discriminatory classification & Average Benefits), your probably ok. But then again, if it does comply with 410(B), it would seem that you could just amend your current DB plan to provide the additional benefits and test it under the general test. If the combined plan worked, doing it all in one should also work and you have saved the expense of adding a second plan.

P.S. I thought about the "primarly db in nature" right after I replied to your post.