Coverage question

[FAPInJax]

A participant is past normal retirement age in a plan being tested for coverage. His benefit is the actuarial equivalent increase of the prior year benefit.

The coverage rules under 410(b) will deem this person to be benefitting even though there was no actual accrual increase.

However, it appears that under 401(a)(26) that this person could fail to get a 1/2% increase (generating a meaningful benefit) and be deemed to NOT be benefitting under 401(a)(26).

Is this a correct interpretation??

[AndyH]

Frank, I posted essentially the same question a few weeks ago and every responder said the person is not benefiting for 410(b) (if his avg comp does not increase and he does not earn a year of accrual service if applicable). He/she clearly is not benefiting for 401(a)(26) for the reason you mention.

[rcline46]

Most interesting question, and somehow I didn't read/understand/see whatever Andyh's post.

Just thinking about it... I would say that if someone is benefitting for 410b, then they HAVE to be considered benefitting for 401(a)(26). And I would argue strongly for that position.

If I lose, then I would argue for exclusion for numerator and denominator for a26 under the process the person is technically retired and should not be considered.

Any regulations? Nah, just me trying to be logical and argumentative.

[Guest merlin]

Reed, Marty Pippins's opinion at the Mid-Atlantic Benefits Conference to the contrary notwithsatnding,I don't think you want to consider this deferred retiree as benefiting. What if you had a frozen plan, and the DR was the owner. He's benefiting, but nobody else is. Haven't you blown the freeze?

As far as 401a26 goes, in Andy's original thread some aquarium dweller suggested that you would still pass on the prior benefit structure.

[AndyH]

OOPS-WRONG LINK REMOVED -SEE BELOW

[Belgarath]

I'm finding this rather confusing - not an uncommon situation.

It seems to me that the 410(b) rules would deem the person in Frank's situation to be benefitting. What is the regulatory language for deeming them NOT to be benefitting?

Humor me for the moment - if they are benefitting under 410(b), then aren't they also benefitting under 1.401(a)(26)-5?

I got interrupted in the middle of typing this - I now notice that Andy has provided a link to prior discussion. I'll see if that answers my question, or deepens the mystery for me...

Deepens the mystery - it seems to be addressing a sub-question?

[Blinky the 3-eyed Fish]

http://benefitslink.com/boards/index.php?s...95&hl=structure

I think this is the link to the prior discussion. Anyway, this person is benefiting for 410(b) under 1.410(b)-3(a)(iii)(F) if they would have otherwise satisfied the accrual conditions. That is the difference in Andy's post where the person did not meet the 1,000 hours requirement. That is also why a frozen plan would not cause someone at retirement age to be benefiting.

As for (a)(26), you certainly can have someone benefiting for 410(b) and not for (a)(26) if they didn't accrue a meaningful benefit. A one cent accrual is enough for 410(b). However, in this case I think Belgarath's cite of (a)(26)-5 clearly states the person is also benefiting for (a)(26).

[FAPInJax]

Thanks for all the discussion.

I agree that 1.401(a)(26)-5 would treat an employee as benefitting under (a)(26) because they are benefitting under 410(b).

However, there was that weird letter that stated something along the line that despite there being an increase in accrued benefit - it had to be at least .5% (or something like that) for it to be 'meaningful'.

Does that letter also apply to 410(b) then??

[Blinky the 3-eyed Fish]

No, any amount is benefiting for 410(b). 401(a)(26) requires it to be a "meaningful benefit". That was describes as 0.5% in the Paul Schultz memo although there is nothing official. This case is of course an exception to the 0.5% as -5 references.

[AndyH]

Please escuse my density. Where under 1.401(a)(26)-5 does it say such a person benefits?

[Blinky the 3-eyed Fish]

1.401(a)(26)-5(a)(1) references 1.410(b)-3(a). Within 1.410(b)-3(a) is 1.410(b)-3(a)(iii)(F), which is on point here.