First Year DB that Counts Prior Service

[Guest pension222]

2003 is the first year of a new defined benefit plan. It credits a maximum of 5 years of service prior to 1/1/2003 to calculate accrued and projected benefits.

For the Average Benefit Percentage test of 410(b) for 2003 (using 2003 as the measurement period) what do I use as the increase in accrued benefit in the DB plan since everyone enters with an accrued benefit as of 1/1/2003 (as a result of counting pre-participation service)?

For example, suppose participant A enters with 5 years of past service and the accrued benefit is $10/month per year of service.

Accrued Benefit @ 1/1/2003 = $50

Accrued Benefit @ 12/31/2003 = $60

Do I test $60 or $10?

[Blinky the 3-eyed Fish]

$60. Instead of considering the AB at 1/1/03, consider it at 12/31/02 = $0. What is your formula that makes this not a safe harbor design?

[AndyH]

pension222, because you did not interject a cross tested DC plan into this question, i.e. if this is only a DB plan, then I think you could test it as either $60/1/comp or $60/6/comp. This is because the measurement period is a little fuzzy in terms of whether it is years benefitting for 410(b) purposes, or years taken into account under the formula.

It is the addition of a new cross tested DC plan (from a prior discussion) that I think limits you to the one year measurement period due to the consistency requirement, as I read the rules anyway.

[Guest pension222]

This is a safe harbor design but is in conjunction with a defined contribution plan.

The entire situation is that there will be a new defined benefit plan that benefits three doctors and all of the rank and file. Three other doctors only will participate in a profit sharing plan. The doctors are distributed between plans according to reasonable job classificatioins.

It looks to me that since the ratio percent for the profit sharing plan is zero we will need to perform the ABP test to pass coverage by aggregating the plans and once the plans are aggregated for 410(b) purposes, they will need to be aggregated for 401(a)(4) purposes. I believe that the plans taken together will be "primarily defined benefit in character".