In determining the amount of the offset from the PS, does the interest credited to a participant's account have to be actual or can it be hypothetical?

[Guest flogger]

In a safe-harbor floor offset (DB): in determining the amount of the offset from a PS plan, does the interest credited to a participant's account have to be actual or can it be hypothetical? Does this change if the accounts are participant-directed?

[Blinky the 3-eyed Fish]

I don't know of anything that would preclude the use of hypothetical interest for the PS plan for the offset.

[Blinky the 3-eyed Fish]

I don't know of anything that would preclude the use of hypothetical interest for the PS plan for the offset.

Ah, but that's what research is for.

Look at Rev. Rul 76-259, specifically the last few paragraphs as they relate to the discussion of the satisfaction of 411(b)(1). It appears from this promulgation that the hypothetical interest credit would cause the offset to violate 411(b)(1) and is therefore not available.

[Guest flogger]

I can see the logic in that if the participant has no control over the investments, such as in a pooled PS account. However, if the participant has control over the allocation of er contributions, then the employer becomes at risk for the investment choices of the participant.

If a PS account decreases because of bad investments picked by the participant, then the obligation for the employer (in the DB floor offset plan) goes up.

Does anyone know of an exception to the rule for this case: in other words, can a hypothetical interest rate be assumed to determine a PS offset amount when there are directed accounts? Is there any distinction between offset calculations when considering either a directed account plan or a pooled account plan?

[Blinky the 3-eyed Fish]

Rev. Rul 76-259 has not been modified by a later promulgation.

There is a simple solution to the problem of investment losses by bad participant investments causing increased DB benefits - don't allow directed investments.

[Everett Moreland]

Self-directed DC accounts that offset DB benefits cannot qualify for 404© protection.

[Guest tcv]

If you are offsetting by a hypothetical balance rather than whatever the actual account balance is, then it is not a true floor offset plan. It is just a wierd formula that looks sort of like a floor offset plan.

[Blinky the 3-eyed Fish]

Be what it may, how would it satisfy 411(b)(1)?

[Guest tcv]

If the offset is based on something other than an actual DC plan balance, then I think you are left with general testing.

[Blinky the 3-eyed Fish]

I will ask again how you can satisfy 411(b)(1)? Notice that Rev. Rul. 76-259 is not addressing whether a formula is a safe harbor or not.