Can a db benefit be contingent on 403(b) participation?

[Effen]

I know that you can not tie a defined benefit accrual to participation in a 401(k) plan (1.401-1(e)(6)), but I couldn't find anything specifically precluding it with a 403(b) Plan.

In other words, can I have a defined benefit formula that is partially tied to participation in a 403(b) Plan? ie: 1% of compensation per year of service, plus .5% per year of service if contributing to the 403(b) plan

[IRC401]

Yes, the client may do it (subject to the plan's complying with 401(a)(4)), but why?

I strongly recommend explaining to the client all of the nondiscrimination testing issues (and associated fees) that go with that type of plan design. It would also be a good idea to discuss the plan design with the actuary.

[MWeddell]

I've seen this plan design a few times. In essence, it's communicated as a match where the additional benefit is provided in the pension plan, but it's subject to 401(a)(4) not 401(m) testing. It only makes sense for large employers -- otherwise the actuarial and administrative issues it introduces offset any advantages.

[Effen]

That is exactly what they were doing - using a cash balance plan as a vehicle to provide a match from a 403(b) plan.

It just seems strange that 401(k)s and 403(b)s are so similar, yet this tactic is expressly forbidden in 401(k)s and permitted in 403(b)s. It just doesn't make any sense.

[david rigby]

It just doesn't make any sense.

We are talking about the Internal Revenue Code, aren't we?