De Minimus DB

[mming]

A DB plan covers only the owner and his wife who each consistently have annual compensations that are less than $10,000. Each has an annual benefit in the plan of $10,000 due to its de minimus provision. They are considering adding a deferral-only 401(k) plan, but I remember somebody mentioning a while back that you can't have more than one plan when your compensation is less than $10,000 and you're getting a de minimus benefit in a DB plan. Is anybody familiar with this? It seems there's not a lot of guidance about this topic available. The employer does not have any other employees. All help is appreciated.

[Lame Duck]

415(b)(4) provides the rules for the de minimus benefit. 415(b)(4)(B) states "the employer has not at any time maintained a defined contribution plan in which the participant participated." This would seem to preclude the adoption of an individual 401(k) plan. Even if the plan provides for salary deferrals, only, it is still a plan sponsored by the employer.

[imchipbrown]

Also ran into the fact that the de-minimus benefit "$10K per year" must be paid as an annuity... no lump-sum.

[Guest Carol the Writer]

Could you please give me a cite for the prohibition on lump sums in a de minimus benefit plan? I have such a plan - which we were just about to takeover this year - and if you know of anything about this restriction, we would be grateful. Thanks!

[Everett Moreland]

http://www.irs.gov/pub/irs-tege/irc415b_eg.pdf

See the above at 4.72.6.3.5, pages 41-42

[imchipbrown]

Nice cite, Everett.

Option: Take 3 years of $10K (separately (1 at a time) or together), have 100% benefit formula, then lump sum is OK.

Option: Remove $10k minimum. Pay lump-sums on accrued benefits. Maybe a reversion! Maybe assets are less than reduced accruals ?