Average Benefit Percentage Test Involving a Frozen DB Plan

[LIBOR]

Just wondering if anyone knows how an employee benefit percentage on a benefits basis would be determined for a participant in a frozen DB plan ?

Can you use the "accrued to date" over comp for this plan and "the annual change in accrued" over comp for other plans in the testing group ? If so, this would answer the question !!

thanks all in advance for your time !!

[AndyH]

Me thinks that they are each big fat 0%s. Nobody is benefiting so nobody gets anything above 0%, regardless of the measurement period.

[Guest Doug Goelz]

For a good summary of the issue, see the 2004 Gray Book Q&A # 27.

[david rigby]

Here ya go!

QUESTION 2004-27

Nondiscrimination: Accrual Rate for Participants in Frozen Plan

Controlled Group A has multiple pension plans. Plans 1, 2 and 3 are active DB plans with participants who currently accrue benefits. Plan 4 is a frozen DB plan that does not adjust benefits to reflect current service or compensation (hard freeze). Plan 3 fails the IRC 410(b) ratio test. Thus, the DB plans are combined to pass coverage. Accrued to date testing is used for general nondiscrimination testing and for the average benefits percentage test (ABPT).

For the accrued to date method, in the case of participants in plan 4, should the accrual rate be determined by dividing the frozen accrued benefit by service and pay at the freeze date or at the end of the testing year?

RESPONSE

If a participant is not currently “benefiting” because there are no current changes in service or compensation taken into account other than for reasons specified in the regulations, then the participant is not taken into account at all for general testing. Only participants who are benefiting are considered.

For the ABPT, all employees are considered without regard to whether they are benefiting. For a participant with a frozen accrued benefit who is not currently benefiting, testing service does not change merely because the participant continues in service. However, average compensation is required to reflect years until termination of employment.

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[LIBOR]

Great replies !! Thanks everyone for your time !!