Smoothly Increasing Allocation Rates & 410(b)

[Guest Ervin B]

Inherited a new plan which passes the smoothly increasing allocation rates under a replacement DB formula. Have Det. Ltr on the formula. Current plan requires only 1 hour of service for allocation conditions.

Am I correct in thinking that as long as the plan passes coverage under 410(b), that the plan can add a 1,000 hours, last day rule prior to 1/1/07? Plan will have to be resubmitted anyway when their cycle comes up.

Or, am I missing something in the avoidance of the minimum gateway?

Thanks...

[John Feldt ERPA CPC QPA]

Are you saying this is a DB plan? If so, DB plans cannot have a last day rule for accrual purposes. Perhaps someone can give us the cite for that.

If this is a DC plan, then you cannot take away any accrual rights that have already been earned for the current plan year, but you can add requirements if no accrual rights have been earned yet.

For example, if the plan year ends 12/31/2006 and the plan does not have a last day requirement now but only has a 1 hour of service requirement, then you cannot add a 1000 hour requirement for 2006 nor can you add a last day requirement for 2006. However, if you amend the plan by 12/31/2006, you could add a last day and a 1000 hour requirement for next year, 2007.

And yes, the formula that uses smoothly increasing allocation rates does not change the normal requirements that the overall plan satisfy coverage (410) - you do not test each allocation rate group for coverage.

Have you read Bill Karbon's article in the September-October 2006 ASPPA Journal?

[Guest Ervin B]

Oops, wasn't clear. This is a DC plan. And yes, adding the allocation conditions would be done for the next plan year as long as document is signed prior to January 1.

I have not read that article yet.

Thanks...