412 (i) DB plan and Aggregation with DC plan

[Guest shtoo]

I've heard that a 412(i) DB plan can be aggregated with a DC plan to satisfy coverage rules, but once aggregated for any purpose, it must be aggregated in all other cases where it is permitted. Assuming a 412i plan is aggregated for coverage, it appears it would need to be aggregated for nondiscrimination testing. In a recent ASPA Journal article, the author said that when a 412i plan is aggregated with a DC plan for nondiscr. testing, it will automatically fail. If this is true, doesn't this in effect, prevent a 412i plan from being aggregated with a DC plan? Thanking you in advance for your thoughts/responses.

[Blinky the 3-eyed Fish]

You are referring to the Larry Deutsch article in the ASPA Journal. I think his issues to aggregating a DC and 412(i) plan arise when the aggregation is needed to satisfy coverage. However, if you need to aggregate just to satisfy nondiscrimination, all should be well.

[Guest shtoo]

Blinky,

can you explain what you mean about why "all should be well", if aggregation of a 412i plan is used only to satisfy discrimination testing?

[Blinky the 3-eyed Fish]

I mean you won't have the concerns raised in the article.

And I didn't say only aggregated for nondiscrimination testing. If you aggregate for nondiscrimination you must aggregate for coverage. My point was that if each plan already passes coverage on their own, then it doesn't matter if one plan has features the other doesn't.

[Guest shtoo]

Thanks, that clarifies it for me; but then, in effect what I thought is true; in terms of coverage, if a 412i plan can't stand on its own, there is no advantage to aggregating with a DC plan, because even if it passes the coverage test, it still has to pass nondiscrimination testing, and it will fail when aggregated with a dc plan. Do you agree?

[Blinky the 3-eyed Fish]

The circumstances would dictate why a plan, any plan, would be permissively aggregated with another plan. For example, it would be possible that you had the following:

412(i) plan

Covers all employees of the employer, so 410(b) is not an issue, but it provides a 10% of pay benefit to the owner and 1% to all the NHCE's. This is not a safe harbor plan and the NHCE's will need to have increased benefits to pass nondiscrimination testing.

PS plan of same employer

Covers all employees with a 10% of pay allocation. This plan is a safe harbor plan.

So, as you can see in this situation, the 412(i) plan does pass coverage on it's own, but cannot pass nondiscrimination on it's own, so it is permissively aggregated for both in the attempt to pass the otherwise failing nondiscrimination.

So, in summary, no, I don't agree with your statement blanketly. It depends again on the circumstances.

[AndyH]

?????

If it's not a safe harbor 412(i), then it's not a 412(i) at all, right? And then you must general test with or without another plan. So if it aggregated with a DC, then it longer "passes" the 412(i) safe harbor, but that doen't mean it can't pass 401(a))4).

[Blinky the 3-eyed Fish]

If it's not a safe harbor 412(i), then it's not a 412(i) at all, right?

No, there can be safe harbor and non-safe harbor 412(i) plans.

[Guest shtoo]

Thanks.