DB plan with a DC provision. Is this weird or what?

[Guest perplexed]

I have a DB plan that requires contributions from eligible ees. Automatic deductions from compensation. I've never seen anything like this. What could be the purpose? The plan has been restated with all the bells and whistles, so it's been looked at during the past few years.

Is this permissible.

[J2D2]

These arrangements used to be quite common, but I haven't seen one for a long time. If memory serves, the employee contributions were used either to provide increased benefits or simply to help pay the cost of the "basic" benefit.

Such arrangement now are even more rare than basic DB plans, themselves. However, I'm not aware of any action taken by Congress or the regulators to ban them.

[AndyH]

It is critical to know what type of sponsor it is, private corporation, non profit, government, church, quasi-government. The rules differ.

[Guest perplexed]

This plan is for a private, for-profit, non-gov company. How will that effect things?

[david rigby]

Not very common in US. (Since EE contribs are pre-tax in Canada, this is more common. That is what I remember anyway; not sure if it is current.)

Certainly this plan provision is permitted, but not necessarily good personnel practice. Very awkward to administer. For example, if an EE declines to contribute one year, then the plan's recordkeeping system will want to know that, so as to exclude that year from any benefit accrual; you can imagine how difficult that might be 20 years later.

If the EE contribution feature is relatively new, then very possible it was used as a technique to "sell" a benefit increase to management/Board.

[mbozek]

There is no prohibition against requiring employees to contribute to a Qual plan as a condition of employment- the contributions are made on an after tax basis unless the employer is a state or local gov and the contributions are picked up under IRC 414(h). The amount of the employee's benefit attributable to employee contributions is 100% vested under the rules of IRC 411©(2).

[actuarysmith]

It is called a contributory Defined Benefit Plan. Used to be much more common. It is a recordkeeping nightmare.

Personally, I would recommend to menagement to eliminate any further employee contributions and amend the benefit formula, if necessary.

[g8r]

As pointed out, it's rarely used. But, the IRS even permits this in defined benefit prototype plans. They have proposed a change in the rules to no longer permit it in prototypes, but I've heard they are rethinking that decision.