Separate Plan for Employees

[Dougsbpc]

An Employer has 6 employees and wishes to cover 3 employees in a defined benefit plan and 3 employees in a profit sharing plan. They will commit to making a 25% of pay contribution to the PSP, so both plans will easily pass 401(a)(4). Also, both plans would be aggregated for 410(b).

The census should not change as all 6 are long term stable employees.

My understanding is that the 25% deduction limit would not apply as long as no employee participates in both plans.

Does anyone see problems with this arrangement?

Thanks much.

[mwyatt]

I only question the stability of the population given the low number of people in the plan and the dramatic shifts in percentages that follow by the addition/removal of one individual.

[AndyH]

My guess it would be tested on benefits basis, so it looks ok as long as the db accrual rates ar at least 7.50% (or you otherwise meet the combo gateway) and perform head counts quite often.

[Guest penman]

That is correct regarding the 25% limit. Also, don't forget to keep 401(a)(26) in mind for the DB plan as well. The plan passes now but on an ongoing basis it is something to be aware of with a DB/DC for such a small group.