Conversion to Floor Offset

[Dougsbpc]

We currently administer a DB and PSP for a group with 15 participants. The DB plan has two tiers-one for owners and one for employees. None of the owners participate in the PSP, but all other employees receive (and will continue to receive) contibutions of 10% of pay. The plans easily pass 401(a)(4), however, we are concerned that the DB may not pass 401(a)(26) as employee benefits in the DB are small (and perhaps not considered meaningful).

To correct the problem, we are thinking about providing higher benefits to employees in the DB and converting it to a floor offset. The result will be $0 benefits for EE's in the DB but at least 10% of pay each year in the PSP.

Question: are we required to provide a 204(h) notice to EE's in the DB prior to converting it to a floor offset?

Also, even though EE's currently have small benefits in the DB, do their benefits go to $0 once the offset is in place or are their accrued benefits grandfathered?

Thanks.

[AndyH]

Sounds to me that you would definitely need a 204(h) notice, and that you would need to grandfather the accrued benefits. Otherwise, how would you not be violating 411(d)(6)?.

[Dougsbpc]

Thanks for the reply AndyH.

I agree. However, it seems a little less clear with a floor plan.

Benefits will be higher for all after making this change. For example, a participant may be guaranteed a monthly benefit of $500 after the change whereas he/she may have only been entitled to $100 before. It is true that this participant will likely be paid less than $100 at NRA. What if the DC plan lost money over time? In that case participants would have higher accrued benefits and may be paid more as well.

[david rigby]

When considering 411(d)(6), remember that it applies to the accrued benefit, not projected, and to the plan, not combination of plans.