Accrued To Date Method

[Dougsbpc]

Have a small profit sharing plan (10 participants) that requires employees to be employed on the anniversary date of the plan to receive a contribution. One of the participants terminated employment prior to year end with 750 hours and therefore did not receive a contribution. However, this participant did receive contributions for the past three years (i.e. he has an account balance).

We are using the accrued to date method when testing for 401(a)(4). Is it correct that he should have an accrual rate even though he did not benefit this year?

Thanks.

[Mike Preston]

No.

[Guest DFerrare]

I agree. Accrual rates are calculated for employees. An employee is defined in 1.401(a)(4)-12 as an employee who benefits under the plan.

[AndyH]

Hmm. Good question.

Mike and David, do you both think the person should be a 0% in the test even though he benefits during the measurement period?

And what if it were a DB general test, where the person was non-excludable but not benefitting in the current year. Even if he had accrued a benefit during the measurement period would he be in with a 0%??

[Mike Preston]

If not benefitting for 410(b) purposes, then 0%. Folks are still benefitting for 410(b) purposes in a DB plan if they bump up against plan imposed caps.

[AndyH]

What if a DB requires 1,000 hours and somebody works 900 (and average comp doesn't increase). The person is non-excludable and non-benefitting, so he must be in the test, right?

If he is in the test, and accrued a benefit during the measurement period (prior year), why doesn't his accrued benefit count?

I guess I should have logged in under Partly Cloudy2 today, but I'm not getting this.

Or are you saying that the condition of 1,000 hours is a "plan-imposed cap" which is irrelevant for 410(b) purposes??

[Guest DFerrare]

Andy-

-12 defines an employee as an employee who benefits under the plan for the plan year (not the measurement period) within the meaning of 1.410(b)-3. If the accrued benefit is the same on the first day and the last day of the plan year, and the requirements for receiving an addtional year of accrual service are not satisfied, the employee is not benefiting, and would have an accrual rate of zero (assuming he/she is nonexcludable) in the general test.

David

[Mike Preston]

Uh, yeah, what David said!

[AndyH]

OK, thanks gentlemen.

Guess it's the same "Employee<>Employee unless benefitting" odd gateway lingo logic, which is of course what David said in the first place.