Restructured DB Plan

[JAY21]

Plan has 51 NHCEs and 8 HCEs. A DB plan is proposed to primarily benefit 2 HCEs (other HCEs excluded) and the required minimum number of NHCEs needed to pass discrimination testing. I think my NHCEs coverage on a 410(b) ratio/percentage basis is 17.5% (2/8 * .70) which is about 9 NHCEs. However, 401(a)(26) will require 24 employees (.40 * (51 + 8)).

Since my 410(b) coverage requirements is much less than 401(a)(26), can I give the 9 NHCEs required for 410(b) the same accrual level as the two (2) benefiting NHCEs to pass 410(b), but give the remaining NHCEs only a 0.5% accrual rate (or something like that) sufficient to have a meaningful accrual for 401(a)(26). Do I then have to general test it or is this a component plan (restructuring) opportunity where each accrual rate can be tested as a separate plan and presumably the lower 0.5% passes since no HCEs are in that component plan. Any issues ?

[Mike Preston]

Works for me.

[AndyH]

Theoretically it works fine I agree. In reality, how are you going to ID the eligible group? Are you going to have no plan for the other group? Note that the other group by itself would not pass 410(b), so you would need to make a second plan (if you had one) more broad and make sure it is a safe harbor so as to avoid the gateway.

[JAY21]

Andy, I was thinking the DB plan would be the only plan of the employer. Does my 0.5% accrual group satisfy 410(b) using restructuring by virtue of no HCEs being in that component plan (i.e., a deemed pass) ? I'm assuming each component plan (each benefit formula) does not have to pass 401(a)(26) individually.

[AndyH]

yes, EF Hutton agreed above and so do I. You have a plan that satisfies the safe harbor requirements by restructuring.

[Lame Duck]

Andy,

I have to agree with you, but how many people out there still remember EF Hutton and its tag line?

[AndyH]

You've started a poll. Let's see. I know there are at least 4 of us.

[JAY21]

Thanks to both of you. When EF Hutton speaks I listen.