Meaningful Benefit?

[Guest guppy]

Anybody have a IRS cite corresponding to the requirements for "meaningful benefits" in DB plans? Something like a .5% of final pay benefit? I need to read up on this quickly.

[Effen]

I assume you have a "tax shelter" type cash balance plan?

Paul Schultz wrote a memo about a year and a half ago expressing the opinion that in order for a benefit to be meaningful for the purposes of 401(a)(26) it should provide at least .5% per year of participation. If you search this board, you should find some good threads and a link to the memo. If you don't have any luck, email me your fax number and I will send you a copy.

You won't find any cites in the law because they don't exist. This is just another case of the IRS trying to make law. They figure that the .5% doesn't cost very much and would be cheaper than fighting with them over the legality of their position.

[Guest guppy]

Actually, I have a companion-type DB plan that maximizes benefits for two principals (and allows for 25% of comp deduction) but pays the general population a trivial benefit (they accrue their primary benefit under the DC plan). The plans are aggregated (obviously) to pass (a)(4). The plan was amended a couple years back to include this "meaningful benefit" as a minimum for non-HCEs.

I will research further as you suggest.

Thanks.

Any other comments appreciated.

[Guest rhp]

In addition to the Schultz memo, IRS document 9242, Employee Benefit Plans, Explanation No 5A, III. Additional Participation Requirements addresses the meaningful benefits rule. It states that an accrued benefit of .5% of total compensation per year of participation "would generally be considered meaningful". This is been sufficient support for agents who have raised the issue.