Testing a Floor-Offset Arrangement for Nodiscrimin

[Guest merlin]

I'm designing a floor-offset plan for a referral, and I want to make sure I'm touching all the bases, and touching them properly.

Basic information:

1.The floor-offset arrangement does not satisfy the f-o safe harbor, because the same people are not covered in both plans.

2.The offset is the ps contribution from the er's 401k plan. The allocation in that plan uses cross testing to satisfy a4.

3. Each plan satisfies 410b on its own, using the ratio % test.

The bases to be touched:

1.The db floor must be tested on a stand-alone basis on the net benefits after the offset is applied.

2.As long as each db rate group passes the rpt I don't need the abt, which means I don't have to worry calculating the "combined" db/dc allocation/benefit rates. If I should need the abt I could still use the "special rule" and calculate the ab%s separately for each plan.

3. I don't have to bump the 5% gateway to 7-1/2%

Anything else I need to be alert to?

[Blinky the 3-eyed Fish]

I appears you are testing the DB plan on it's own for coverage and nondiscrimination. So, I agree with all you state. One note is that for the "special rule" to be used, you can't use cross-tested benefits to pass the ABT for the DC plan.

[Guest merlin]

Right. Like stays with like, or something equally arcane.

[AndyH]

In the Blink of an eye I was beaten to the same comment.

Merlin, just curious, how are you going to get a DB net offset plan to pass 401(a)(4) on it's own? Seems like an odd candidate for an DB and/or offset then.

[Guest merlin]

Two things make it work. First,I'm excluding 2 out of 4 HCEs by classification (non-owner HCE). Second,I'm projecting the dc accumulation at the actuarial equivalent rate of 5%. The offsets are smaller than if I had used 8% or 8-1/2 but everybody gets some net benefit, and it's enough to make it work.

The reason I did it as an offset plan is that the financial planner wanted to mimimize the number of participants in the db plan. So there are 2 HCE and 3 NHCE excluded (still passes 401a26). Even with them out,doing it on a pure db basis produced a cost > 25% of pay, so that would have precluded any er contribution to the ps plan. The plans are top heavy and all of the exclusions are nonkeys.

It actually works out pretty well. The owner and wife get $92000 out of 99000 in the db plan and 80000 out of 98000 in the ps plan. The total 25% limit is about 215000