401(a)(26) in an offset arrangement

[Blinky the 3-eyed Fish]

I have a situation where an employer has a DC plan and a DB plan. The benefits in the DB plan are offset by the account balance in the DC plan. For all but the owner of the company the DB benefit ends up being completely offset. The two plans are general tested.

Can anyone think of a problem with passing 401(a)(26) if highly compensated employees, other than the owner, are excluded from the DB plan. I think under 1.401(a)(26)-5(a)(2)(iii) this is OK, but am looking for confirmation or condemnation.

[Guest merlin]

I went through this issue with an attorney last summer. He had no problem with it, as per your cite. Of course, we won't know for sure until the plan is submitted and approved.

[Mike Preston]

I didn't think that HCE's had much impact on a26 testing, unless the plan is comprised solely of NHCE's. Are you saying that your DB plan participants, before offset, do not satisfy 401(a)(26)?

[Blinky the 3-eyed Fish]

No, Mike, my question more relates to the satisfaction that the employees must satisfy 1.401(a)(26)-5(a)(2)(iii), specifically, 1.401(a)(26)-5(a)(2)(iii)(A)(2), which I copied below.

"(2) The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis; and"

[Mike Preston]

I don't think there is any question about the fact that your design satisfies a plain English reading of the section.

I have known people to go much farther.

The universe of people being discussed is the universe of people in the DB plan. To the extent that people benefit in the DC plan over and above the people who are also in the DB plan is irrelevant.

The question then goes to what is "reasonable and uniform".

Some have taken the position that "reasonable" under that context is intended for non-discrimination purposes, not 401(a)(26) purposes. I think this was based on a comment from the podium at some long forgotten conference. But you don't even get close to this issue of varying DC amounts for HCE's in the DB plan.