Recognizing predecessor employer

[Guest picwrc]

I know it is possible to recognize service with a predecessor employer, but, I'm curious if it is alright to recognize compensation with that preecessor employer? Can a high three year average for a DB plan use compensation over all years of service, including those with the predecessor employer? What happens with ex-employees of the predecessor employees if service with the predecessor employer is recognized?

[KJohnson]

From the 414(s) regulations--

(f) Prior-employer compensation and imputed compensation--(1)

General rule. Solely for purposes of determining whether a defined

benefit plan, as defined in Sec. 1.410(b)-9, satisfies section 401(a)(4)

or 410(b), an alternative definition that includes prior-employer

compensation or imputed compensation satisfies section 414(s) as a

reasonable alternative definition if the definition satisfies the

requirements specified in paragraphs (f) (2) and (3) of this section. For this purpose, prior-employer compensation is compensation from an employer other than the employer (determined at the time that the compensation is paid)

maintaining the plan that is credited for periods prior to the

employee's employment with the employer maintaining the plan and during

which the employee performed services for the other employer. For this

purpose, imputed compensation is compensation credited for periods after

an employee has commenced or recommenced participation in a plan while

the employee is not compensated by the employer maintaining the plan or

is compensated at a reduced rate by that employer because the employee

is not performing services as an employee for the employer (including a

period in which the employee performs services for another employer,

e.g., a joint venture) or because the employee has a reduced work

schedule.

(2) Requirements for definitions of compensation crediting prior-

employer compensation or imputed compensation--(i) General requirement.

The definition must otherwise be described in paragraph © of this

section or must otherwise satisfy the requirements of paragraph (d) or

(e) of this section for alternative definitions of compensation,

including the nondiscrimination requirement in paragraph (d)(3) of this

section.

(ii) Benefit determination. A definition of compensation that

credits prior-employer compensation or imputed compensation must

actually be used to calculate the benefits under the plan. For example,

the definition may not be used to determine whether a defined benefit

plan satisfies section 401(a)(4) unless the benefits for each employee

in the plan are determined using that definition of compensation.

(iii) Provision applied to all similarly-situated employees. A

provision in a plan's definition of compensation crediting prior-

employer compensation or imputed compensation must apply on the same

terms to all similarly-situated employees in the plan. The criteria for

determining whether employees are similarly situated for this purpose

are the same as the criteria for determining whether a plan provision

crediting pre-participation or imputed service satisfies the

requirements of Sec. 1.401(a)(4)-11(d)(3)(iii)(A).

(iv) Legitimate business purpose. There must be a legitimate

business purpose, based on all of the relevant facts and circumstances,

for crediting prior-employer compensation or imputed compensation to an

employee for the period being credited. The standard for determining

whether crediting prior-employer compensation or imputed compensation

satisfies this requirement is the same as the standard for determining

whether crediting pre-participation or imputed service under a plan

satisfies the requirements of Sec. 1.401(a)(4)-11(d)(3)(iii)(B) and

whether crediting imputed service satisfies the additional requirements

of Sec. 1.401(a)(4)-11(d)(3)(iv)(A). However, if the legitimate business

reason for crediting imputed compensation relates to the services the

employee is performing for another employer and the reason satisfies the

standard in Sec. 1.401(a)(4)-11(d)(3)(iii)(B), the additional

requirements of Sec. 1.401(a)(4)-11(d)(3)(iv)(A) are deemed to be

satisfied. For example, if an employee becomes employed by another

employer as a result of a merger, acquisition or similar transaction

with the other employer and imputed compensation is credited to the

employee while the employee is performing services for the other

employer, the crediting of imputed compensation to the employee

satisfies the standard in Sec. 1.401(a)(4)-11(d)(3)(iii)(B). Thus, under

that example, crediting the imputed compensation to the employee is

deemed to satisfy the additional requirements of Sec. 1.401(a)(4)-

11(d)(3)(iv)(A), even if the employee is not performing those services

under an arrangement that provides an ongoing business benefit to the

employer maintaining the plan.

(v) No significant discrimination. Based on all of the relevant

facts and circumstances, crediting prior-employer compensation or

imputed compensation must not by design or in operation discriminate

significantly in favor of highly compensated employees. The standard for

determining whether crediting prior-employer compensation or imputed

compensation satisfies this requirement is the same as the standard for determining whether crediting pre-participation or imputed service

satisfies the requirement in Sec. 1.401(a)(4)-11(d)(3)(iii)© and

whether crediting imputed service satisfies the additional requirement

of Sec. 1.401(a)(4)-11(d)(3)(iv)(B).

(3) Reasonable method--(i) General rule. Any reasonable method may

be used to determine the amount of prior-employer compensation or

imputed compensation provided that the requirements of paragraph (f)(3)

(ii) or (iii) of this section are satisfied, whichever is applicable.

(ii) Requirements for prior-employer compensation. Prior-employer

compensation credited to an employee for a period that an employee is

performing services for another employer must be compensation for the

employee from the other employer (or be based on the employee's basic or

regular rate of compensation from the other employer) for that period.

In addition, prior employer compensation credited to an employee must

not exceed the amount of compensation from the other employer that would

have been included under the definition of compensation in effect for

that period for compensation from the employer maintaining the plan.

Reasonable assumptions may be made in determining the amount of

compensation received from another employer for a period that would have

been included under the definition of compensation in effect for that

period for compensation from the employer maintaining the plan.

(iii) Requirements for imputed compensation--(A) General rule. The

amount of imputed compensation credited to an employee during any

period, when combined with the amount of any actual compensation being

included, must not exceed an amount that, based on all of the relevant

facts and circumstances, is reasonably representative of the amount of

compensation that the employee would have received and that would have

been included under the definition of compensation in effect for the

period if the employee had continued to perform services for the

employer during that period at the same level as the employee was

performing before the employee stopped performing services or changed to

a reduced work schedule. The relevant facts and circumstances include

the compensation that the employee was receiving immediately before the

employee stopped performing services or changed to a reduced work

schedule, and, if applicable, the rate of compensation in effect while

the employee is not performing services or has a reduced work schedule

that is applicable to the employee's specific job grade immediately

before the change occurred.

(B) Imputed compensation from another employer. Imputed compensation

credited for a period that an employee is performing services for

another employer is deemed to satisfy paragraph (f)(3)(iii)(A) of this

section if the amount of compensation credited satisfies the

requirements of paragraph (f)(3)(ii) of this section for prior-employer

compensation. Thus, for example, the amount of imputed compensation

credited to an employee for a period that the employee is performing

services for another employer is deemed to satisfy paragraph

(f)(3)(iii)(A) of this section if the amount credited is compensation

for the employee from the other employer (or is based on the employee's

basic or regular rate of compensation from the other employer) for that

period, and the amount credited does not exceed the compensation from

the other employer that would be included for the employee under the

definition of compensation in effect for that period for compensation

from the employer maintaining the plan.

(4) Special nondiscrimination rule for safe harbor definitions. If a

definition of compensation crediting prior-employer or imputed

compensation is otherwise described in paragraph © of this section,

and the prior-employer compensation or imputed compensation credited

satisfies the requirements of paragraphs (f) (1), (2), and (3) of this

section, then the definition is deemed to satisfy paragraph (d) of this

section (i.e., it is deemed to be nondiscriminatory).

[Guest picwrc]

Thank you. Wow, did you type all that? I really appreciate it.

[KJohnson]

just cut and pasted from the regs on-line.

[david rigby]

Look for the reg here: http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html