Transfer between DB Plans

[Guest AEA]

Client has 2 DB plans - one for hourly EEs and one for salaries EEs. The hourly formula is simple ($ x years of service). The salaried formula is more complicated (% x average annual comp x credited service), but is a richer benefit. Currently, when an employee transfers from an hourly position to a salaried position, hourly benefit freezes and participation in salaried begins. All service and compensation taken into account for the salaried plan for all purposes. The plans have language to offset benefits to the extent they are for the same period of employment and/or earnings.

The sponsor has asked whether they can stop counting service while in the hourly plan as service in the salaried plan for benefit accrual purposes only. I have already explained that it could only be for new transferring EEs (anti-cutback rule), but I keep feeling like this is a bad idea. Unfortunately, my research hasn't helped me to pinpoint why I am uncomfortable.

Any suggestions?

[Blinky the 3-eyed Fish]

I don't see an issue with prospectively not crediting service in the salaried plan while an hourly employee. In my experience that is the norm in these situations. The amendment timing couldn't discriminate in favor of HCE's, but I doubt that is an issue in your case.

[AndyH]

I agree, but then again I almost always agree with Blinky, so that is not news.

I've seen (too) many plans that have done it each way; I don't recall one being more prevalent than the other.

[Blinky the 3-eyed Fish]

I almost always agree with you too Andy.

As Lionel Richie says in the I Love the 80's shows on VH1, "Can you feel the love? I know I do."

[Guest merlin]

Would there be any problem in counting all service and then offsetting the salaried plan benefit by the benefit accrued under the hourly plan?

[AndyH]

No problem, Merlin; I have a plan that does exactly that, because the salaried plan is richer.