Accrued-to-date Testing Years with Permissive Aggregation

[Guest Mark Draa]

Small medical practice, two docs, 3 staff. Practice started in 1969, existing DC plan started in 1985. New DB for 2004. 1 doc (AA61) & 1 staff in DB, other doc (AA41) & remaining 2 staff in DC (to avoid 404a7). Both participants in the DB no longer participate in the DC, but have frozen DC account balances. DC has 401l integrated allocation formula. DB accrues benefit fractionally using all years of service.

Older Doc was the only ee until 1989, when the younger doc came on board. First staff member was hired in 1993.

DB won't pass 410b alone, so I'm permissively aggregating both plans.

When calculating EBARs for the A4 testing using the Accrued-to-Date method (Testing on a benefits basis), what latitude do I have in defining the "Testing Years"? I've read 1.401(a)(4)-8(B)(2), but I'm still struggling. Must I calculate the DB portion of the EBAR using years of participation in the DB (which would currently be "1" as of 12/31/04), or can I use years of service since accruals are done on that basis? The DC portion would then be calculated using DC years of participation?

Could I instead use a common number for both portions of the EBAR - say, years of DC participation?

TIA!

[AndyH]

There is no clear answer to this. I'll offer an opinion. Others may disagree. If Mike Preston disagrees (and he might), go with his answer

I think your suggested approach db/db years dc/dc years is the right way to do it. But I would think that since you are permissively aggregating them that you could use total years benefitting in either plan.

But you've got a couple of other problems or potential problems-401(a)(26) if your one DB NHCE quits, plus you've got a grant of past service more than 5 years in the DB plan which you must test for discrimination, and with a medical practice you've got a good chance of not passing.

[Guest merlin]

Mark, if your 2 db participants still have balances left in the dc plan you're still subject to 404a7. See Q&A 5 from the 2003 ASPA conference.

[Guest Mark Draa]

I concur. We're planning on rolling the frozen DC balances to the new DB as part of the setup, so that should solve that problem. (the tenuous nature of the whole thing is another problem that CAN'T be solved, however).

Good catch - thanks!

[Tom Poje]

Mark:

was this your one and only post you are allowed for a year?

[Guest Mark Draa]

Oh, a Wise Guy, huh?

Maybe this was the only thing that came up this year I DIDN'T already know the answer to! (uh, yeah - and if you believe that... )

[AndyH]

Tom, could be he's on the three year testing cycle for all plans. I gotta start doing that too.

[Tom Poje]

ooooh. thats good.

I'll have to have you write my material.

Or have you come to my work. then maybe I can have a little time to write something like "Relius and Component Plan testing"

[AndyH]

just tell me when and it's a deal.