DB/DC combos

[Guest lforesz]

We are thinking about bringing in a cross-tested PS plan for an employer that also has a DB pension plan. I know there are more complex rules regarding the min alloc gateway for DB/DB plans that depend on the highest HCE aggregage allocation rate, but my biggest concern is if we can actually do the cross-testing for the PS plan. Does the normalized value of the DB accrual always need to be included in the rate group test, or ONLY If the DB plan cannot pass coverage on it's own, so must be combined with the PS plan for 401(a)(4)? Also, what about the ABT portion of the cross-test. Do the DB benefits need to be included there? My concern is that we use the Datair DC testing module, and I was told I could not use this for DB/DC combos because the system does not calculate the most valuable accrual rate, only the normal accrual rate. Any help is very much appreciated. Many thanks!

[AndyH]

If the plans separately satisfy coverage, the NCT test can be done by ignoring the other plan if you wish.

If you choose to do so, however, and any rate group falls below 70%, you must proceed to the Average Benefits Percentage Test, and you must include the other plan in the ABPT if either plan is cross tested for 401(a)(4).

For example, if you test a PS plan on a contributions basis (i.e. not cross testing), then for all testing purposes including the ABPT you can ignore the DB. But if you are cross testing the PS (i.e. on a benefits basis), then the DB accruals must be included in the ABPT regardless of whether you choose to aggregate that plan for the NCT test.

Regarding software, you only need to calculate the MVAR if the DB is included in the NCT test, which would happen if you are aggregating plans for 401(a)(4) testing purposes. There is no MVAR in the ABPT.

And the DB/DC gateway rule only applies if you do choose to aggregate the plans for testing.

[Guest lforesz]

Thanks, Andy. That was extremely helpful. I'm relieved about not needing to compute the MVAR as that means we don't have to upgrade our software. I now understand that the MVAR is only applicable if the plans cannot pass coverage on their own and the DB plan needs to be included in the NCT.

Unfortunately, it seems most DB plans are put in as cash balance plans for the partner or owner groups.

I thank you for taking the time. Sometimes I just can't get the answers I need not matter how hard I look and I really appreciate people willing to share their knowledge, like you.

Hope you have a wonderful day!

[AndyH]

Thanks for the kind words, Lori. I learned a lot of what I know from reading things here and then cross checking that information myself, so it's good to be able to pass it on. If you were to look at my first posts, I've learned a great deal since then, much of it here.