401(a)(26) meaningful benefit

[Guest csk]

1. Attempting to satisfy meaningful benefit requirement in cash balance plan. Do I project contribution at accumulation rate and divide by factor using plan assumptions or can I divide by standard discrimination testing assumptions factor?

2. If we need 50 participants to have meaningful benefits can we count participants who terminate during the year that accrual a benefit? Or because it has to be satisfied each day of the year we can't count them during the period after they terminate?

[SoCalActuary]

To answer your questions from my experience,

1. You develop a benefit at normal retirement age using the plan document assumptions only, not the testing assumptions. You normalize the plan benefit when a lump sum is available using testing assumptions for the most valuable benefit only.

2. During the elapsed time of the year, those with a benefit accrual might include current year terminees. Include them in the test as benefiting. Include the other terminees with 501 hours but no accrual as in the test with zero benefit.

However, expect your plan audit to be done by an agent who misunderstands 401a26. If it happens that you are audited, some field agents are unwilling to follow guidelines already approved by the National Office, so be prepared to fight for your position.

[Guest csk]

Thank you. I'm not sure I fully understand Q2. As an example:

1. Employer has 1000 employees.

2. DB Plan has 49 employees who work entire year of 2004 with over 1000 hours and accrue meaningful benefits.

3. One additional employee hired 7/1/04 and term 9/1/04 with 200 hours accrues meaningful benefit.

Does this satisfy 401(a)(26) or is there a problem because during first 6 months and last 4 months only 49 employees accruing benefits?

[Blinky the 3-eyed Fish]

It satisfies 401(a)(26). What cite are you looking at that says it has to be satisfied each day of the plan year? I assure you annual testing is permitted.

[SoCalActuary]

In my opinion, you satisfy the 50 employee rule. The accrual during the year included 50 who received benefits. I believe for this test, you accrue benefits in a DB or you don't, and when you earn them during the year is not important.

[Guest csk]

Thank you. This is what confused me but I think I get it now.

§1.401(a)(26)-7. Testing methods

(a) Testing on each day of the plan year. A plan satisfies section 401(a)(26) for a plan year only if the plan satisfies section 401(a)(26) on each day of the plan year. An employee benefits on a day if the employee is a participant for such day and the employee benefits under the plan for the year under the rules in §1.401(a)(26)-5.

[Blinky the 3-eyed Fish]

I see, but -7(b) is where you get to the results SoCal and I mentioned with the testing date as the last day of the plan year.