Adding DB to 401(K)

[pbarrett]

We're getting lots of clients wanting to "add on" DBs to their 401(k) plans.

We have a hub/wife 401(k). The are both over 50 and have each deferred $14,000 for the 2003 year from payroll. No match or employer contribution has been made. They each will earn a high salary this year. There are no employees.

If a DB was established 2003, and let's say the funding requirement was $50,000 each for the two of them (100,000 total - wild guess), I know they can deduct the funding requirement for the DB but is it kosher in the eyes of IRS?

My question is-- are they not over the 415 limit? They really cannot have both or am I missing something?

[Guest Bob K]

There is a separate 415 limit for DB plans and DC plans.

If neither is violated for that specific plan, there is no problem.

The contributions to the 401(k) do not impact the DB 415 limit and visa versa.

There used to be a combined 415 test for both plans but that was repealed effective for the 2000 plan year.

The only problem might be the deduction. The deduction for a DB/DC combination is the greater of 25% of compensation or the DB funding requirement (as determined by the plan's acturary).

Hope this helps.

[Tom Poje]

If the 401(k) only consists of deferrals, there is no deduction issue since deferrals don't count.

it is a good deal.

[Guest Bob K]

Tom, thanks for the clarification.

I read the question to say that the match had not been made yet. In rereading it, I fully agree with your answer.

Bob

[actuarysmith]

401(k) deferral only do not count against 404. Therefore no problemo - forge ahead!

this can tricky when there are employees, though - still must pass ADP test.........

[david rigby]

Perhaps this is obvious to the orginal poster, but the phrasing is a bit troublesome:

Please don't try to amend a 401(k) plan to add a defined benefit feature. Use a separate plan.