db dc combo and top heavy

[Tom Poje]

the combo plans provide the top heavy in the DC, so it is 5%.

an ee works over 1000 hours and quits, so he is not eligible for the top heavy in the DC.

now, does he have to somehow get the top heavy in the DB, or is there some some rule that says 'no, the plans are now considered combined and we operate using the rules for whatever pln provides the top heavy - in this case the dc requiring last day employment.

[Effen]

Like all things... it depends on what the documents say, but they clearly need the db top heavy ben, or alternative DC ben. Most of the documents I work with provide the 5% in the DC plan even though they didn't satisfy the last day worked rule.

Normally with DB/DC combos you have gateway issues as well, which can require bens greater than TH.

[could be me maybe not]

Tom, I've run into this kind of thing more often than I like to think. The answer is Yes, they need to get the top heavy for whatever plan they have met the requirements of.

Unfortunately some times plans point to each other in which case you will need to amend one of the plans.

Effen's document comment is of course correct but there is a fair chance hat one of them might need fixin. Providing the combined top heavy in the DC is unusual from my experience because the DB 2% covers both plans.

[Effen]

I agree w/ cbmmn. I tend to do things because they are easier to calculate and make a little more sense to the Employer, even though they might be a little more expensive.

Most of our db/dc combo involve a cash balance plan and providing a 2% traditional db accrual in a cash balance plan can be problematic.

[Tom Poje]

your comments correspond to how I thought things should work, but the boss was disagreeing on this one. Was actually working on a DC/DB proposal, and yes the DB would be cash balance. much less the fun of testing the animals for nondiscrimination, I also wanted to be covered for the odd cases of top-heavy that might arise.

Thanks!

[Effen]

Be careful with the gateway and 401(k) safe harbor issues as well. Receiving a TH min means they are "benefiting" which can trigger gateway problems.

Also, the client needs to understand that there is no "last day" rule in the cash balance plan. Again, since a terminated participant might be benefiting, it could trigger gateway issues and require them to receive a DC allocation as well. Try to build in lots of options into your DC allocation.

This is not the type of plan design that you should "dabble" in. In other words, if you only do 1 or 2, you will most likely loose your shirt. Lots of pitfalls you need to be aware of.

[could be me maybe not]

1. Excellent comments by Effen.

2. Animals don't discriminate.

3. Not everybody wears shirts anyways.

[Blinky the 3-eyed Fish]

I have a list too:

1. Since when did Tom go DB?

2. I am wearing a shirt.

3. You could just remove the last day requirement for a DC TH contribution, but I prefer to use the offset method in the DB. So when someone terminates with over 1,000 hours, their TH is handled in the DB. DB TH is offset by DC equivalent balance from prior years. Most people who quit are young and get a big fat $0 more due to the offset because a youngins 5% in a DC is worth more than 2% in a DB. Even for the older folks, my DB/DC arrangements are nearly always general tested, so everyone got 7.5% anyway in past years and you have to be pretty old to have that be worth less than the 2% DB.