Floor offset and Form 5500 Participant Count

[C2C]

We have a floor offset plan where the accruals were frozen two years ago. The ER is still making contributions to the PS plan, so the DB benefits for the many of the active participants are completely offset. The number of participants in the plan before the offset is applied is over 100. However, the number of participants with benefits after the offset is applied is less than 100. I am confident the ER doesn't have to pay PBGC premiums for these folks but what about counting them as participants on the Form 5500?

I would like to have the plan be considered a small plan (under 100 participants) but I think that those folks with $0 benefits in the DB after the offset are still "retaining credited service" to the extent they were participants before the freeze date. So, they would still be considered participants for 5500 purposes.

Does anyone have any thoughts, input, experience with this, etc.?

Thanks!

[Guest merlin]

Are you saying that the benefits are not really frozen, but are actually melting as the PS account balances are increasing? The question was asked at the 98 EA meeting, and the response then was that it was a "gray area of law" as far as the IRS was concerned. Do you have anything more recent?

[AndyH]

C2C, I agree with your "retaining credited service" comment. It is my understanding that they are absolutely participants for 5500 purposes, but not required to be included in the PBGC count.

[C2C]

Yes, the benefits are "melting away".

[Kirk Maldonado]

What is the authority for not taking those participants into account in determining the amount of the PBGC premium?

[AndyH]

Kirk, the PBGC Form 1 instructions were changed in 2000 to change the participant definition for premium payment purposes to exclude those for whom the plan has no "benefit liabilities".

Then under the instructions to Item 13 of Form 1-EZ (among other places) it says "For premium purposes, individuals who are earning or retaining credited service but with respect to whom a plan has no benefit liabilities are not counted as participants. But individuals who are earning or retaining credited service are considered to be participants for purposes of line 7 of the Form 5500, even if the plan has no benefit liabilities with respect to them."

I believe that there may have also been a PBGC Technical update on the subject and presumably there was an actual regulation, but in any event I think the instructions are clear that if you do not have an accrued benefit, you are not a participant for PBGC premium purposes but you are for 5500 purposes.

[Guest merlin]

C2C,

How are you rationalizing the meltdown? It sound like a reduction of an accrued benefit

[Blinky the 3-eyed Fish]

Andy is correct, as usual.

Merlin, I believe this situation is acceptable because of the floor offset situation. The participants are only having their DB benefits lowered because they are getting more in the PS plan. Their total benefit is in tact. It's not an issue where the net DB benefit is frozen in time at it's highest level. Otherwise, you would also have to consider the DC account balance at each instant in time and determine if at that point the net DB benefit were greatest.

[C2C]

Thanks guys. You are always so helpful. I appreciate all your effort on this message board. I hope I can be a helper instead of the helpee some day...