DB AND DC COMBINED DEDUCTION

[Guest f1234]

If an employer sponsors a DB and a MP, how do you adjust the 25% combined deduction limit for the liability for terminees that are not benefitting under the MP? The plan funding method is modified aggregate and the teminated participants are included in the funding calculation.

The MP document does not contain any language that would limit the MP funding in the event that the MP and DB contributions exceed 25%.

The DB also provides a life insurance benefit. Please confirm that the insurance cost is included in the overall 25% maximum.

[david rigby]

I'm unsure what your question means, but anything here that might help?

http://benefitslink.com/boards/index.php?showtopic=26823

http://benefitslink.com/boards/index.php?showtopic=24749

http://benefitslink.com/boards/index.php?showtopic=24927

IRC 404(a)(7).

[Guest f1234]

I am trying to determine the mechanics of allocating a portion of the DB funding to terminated participants, who are not benefitting under the DC plan and whose share of the plan funding I believe should not be considered in determining the overall 25% combined limit. Is there a specific method that should be used, such as multiplying the DB funding times a ratio of deferred terminee PVAB to total plan PVAB?

[WDIK]

I believe should not be considered in determining the overall 25% combined limit.

I don't think 1.404(a)-13 makes any reference to such an adjustment, rather it states, in part, the following:

"The limitations under section 404(a)(7) for any taxable year of the employer are based on the compensation otherwise paid or accrued during the year by the employer to all employees who, in such year, are beneficiaries of the funds accumulated under one or more of the overlapping trusts or plans."

[AndyH]

Your question demonstrates a lack of understanding of a couple of concepts that you need to know before you will understand the answer.

Who is or is not included in a "funding valuation" is completely irrelevant, as is the funding method. They may affect the DB contribution, but not the 25% calculation.

The 25% limit is the gross compensation of participants (up to the 401(a)(17) limit) who benefit under either plan. Terminees who do not accrue benefits under the db plan and are not eligible for a contribution in the MP plan are not counted.

Blinky or some other denizen will correct me if I have used the wrong term "benefit" as the appropriate standard but this is the concept.

The sponsor will most likely need to fund whatever the funding requirements are without regard to whether it is deductible, particularly if the MP plan has no language to the contrary.

The insurance question relates to the funding method but has nothing to do with the 25% limit.

p.s. the deduction limit may not be 25% in this case anyways, it is the greater of 25% or the minimum required db contribution.

Hope this helps.

[Effen]

I think you are over thinking.

If they are benefiting under either plan, then you consider their pay in the 25% limit. Just add up the pay, multiply by 25%, compare it to the db MINIMUM required contribution, take the greater of the two and that is the maximum deductible contribution.

[AndyH]

Wow, almost a tie. If I wasn't so long winded I would have won.

[stephen]

Hmmm, I was unaware that this was a contest...

[david rigby]

My memory may be faulty, but I recall a contributor pointing out that "benefitting" is not quite the correct concept under 404(a)(7). What counts is if you are a participant in either plan, with out regard to such issues as vesting, funding method, benefit accrual, etc.

[Guest f1234]

Thank you for your responses. The sum of the DB minimum funding and the MP contribution exceeds 25% of the compensation of individuals, who are benefitting in both plan. The minimum DB contribution is less than 25%.

Since the terminated participants impact the DB funding, is there some manner of of reflecting how much of the DB funding is due to their liability and not subject to the overall 25% cap?

[WDIK]

Not to be redudant, but...

I don't think 1.404(a)-13 makes any reference to such an adjustment.

[AndyH]

Now let's do a poll evaluating WDIK's followup comments

pax, you are right, there was lots of discussion of that, but was there actually an answer?

I know that was resolved within the context of two plans including a k plan, but a db/dc combo? I don't recall a discussion that was conclusive.

[david rigby]

I think we do have an answer. Let's try this thread, initiated by some bozo:

http://benefitslink.com/boards/index.php?showtopic=23128

[AndyH]

I guess that is reason #52 why we need Mike P back (reason #51 is the loss of MGB). At least I did remember the k plan answer.