Minimum participation rules - meaningful benefit

[Guest seissler]

I have a takeover DB plan that provides 55% of average pay for shareholders and NHCEs and $1 per year of participation for non shareholder HCEs. Therefore I surmise that the $1 benefit was for the purpose of providing a meaningful benefit to meet the minimum participation rules, when needed. And, in fact, I have for participants for 2004 only 1 HCE shareholder and 1 HCE non shareholder and no NHCEs. Both participants must have meaningful benefits, in order for the plan to meet the minimum participation rules. Per the plan, I would give 55% of pay to the shareholder and $1 per year of participation to the non shareholder HCE.

A prior IRS Alert Guideline said that 0.5% X average pay X year of participation would be a minimum meaningful benefit. This guideline refers to "nonshareholders" needing this minimum. However, I am wondering if, since the person not getting a "meaningful benefit" is an HCE, I am okay with the plan as is. Obviously whoever set up the plan thought it was okay, so I thought I would ask around a bit, before I make waves.

[Guest dsyrett]

I would be concerned since min particpation rules don't look at HCEs vs. NHCEs, only partcipants in general. If it was me , I would want to see a 0.5% / yr minimum for everyone, unless I'd gone for an IRS det ltr on the existing design.

[Blinky the 3-eyed Fish]

I agree. Also keep in mind that the plan could have been designed before that Schultz memo or the designer could have just willfully ignored the Schultz memo. Justifying a $1 benefit as meaningful under any circumstances is a big stretch.