Nondiscrimination

[FAPInJax]

A client has asked the following question regarding methodology.

An employer has a plan that is a life only benefit at 65 with actuarial equivalent of 5% and UP1984 (for the sake of argument).

The calculation of the normal accrual EBAR is the increase in the accrued benefit (one method) divided by compensation. This does not recognize the AE assumptions versus testing assumptions (ignore the most valuable issue for the moment).

Is this fair to NOT recognize (through normalizing the life benefit from plan to testing assumptions) the difference in assumptions??

Now, let's say the same employer establishes both DB and DC plans as 'carve' out groups.

The DC EBARs are calculated using 8.5% testing assumptions AND the DB EBARs ignore the assumptions for normal accrual purposes (using the method above).

Is this fair or even legal???

My answer was that the regulations do NOT REQUIRE the normalization when the benefit is a life annuity. The issue of the AE versus testing assumptions will be dealt with in the most valuable EBAR. There is no issue of 'fair' but what the regulations outline as the proper procedures.

Any disagreements??