Cash-Balance Vesting Requirement

[JAY21]

So PPA 2006 requires full vesting within 3 years on new cash-balance plans.

Does that mean if we permissively aggregate a new cash-balance plan with an existing profit sharing plan, and the HCEs are the ones primarily benefiting under the cash-balance plan that we're likely to have to make the profit sharing plan vesting schedule match the cash balance's vesting schedule ? Seems like we would need to but I'd love an out. Any thoughts ??

[AndyH]

I have not looked it up, but isn't there something in a(4) that says that diferences in BRFs inherent in different types of plans that are aggregated can be ignored. If something is required, then this might be a way out.

[Blinky the 3-eyed Fish]

Andy, you are thinking of 1.401(a)(4)-9(b)(3) copied below:

(3) Optional rules for demonstrating nondiscrimination in availability of certain benefits, rights, and features--(i) Current availability.

A DB/DC plan is deemed to satisfy section 1.401(a)(4)- 4(b)(1) with respect to the current availability of a benefit, right, or feature other than a single sum benefit, loan, ancillary benefit, or benefit commencement date (including the availability of in- service withdrawals), that is provided under only one type of plan (defined benefit or defined contribution) included in the DB/DC plan, if the benefit, right, or feature is currently available to all NHCEs in all plans of the same type as the plan under which it is provided.

(ii) Effective availability.

The fact that it may be difficult or impossible to provide a benefit, right, or feature described in paragraph (b)(3)(i) of this section under a plan of a different type than the plan or plans under which it is provided is one of the factors taken into account in determining whether the plan satisfies the effective availability requirement of section 1.401(a)(4)- 4©(1).

Here is some of 1.401(a)(4)- 4(b)

(b) Current availability--

(1) General rule.

The current availability requirement of this paragraph (b) is satisfied if the group of employees to whom a benefit, right, or feature is currently available during the plan year satisfies section 410(b) (without regard to the average benefit percentage test of section 1.410(b)-5). In determining whether the group of employees satisfies section 410(b), an employee is treated as benefiting only if the benefit, right, or feature is currently available to the employee.

(2) Determination of current availability--

(i) General rule.

Whether a benefit, right, or feature that is subject to specified eligibility conditions is currently available to an employee generally is determined based on the current facts and circumstances with respect to the employee (e.g., current compensation, accrued benefit, position, or net worth).

I have always had the same vesting schedule in the DB and DC plans because there was no reason not to. We have many clients that have existing DC plans that want to add a DB plan. A CB plan often is the best solution, but they wouldn't want to change to a 3-year cliff in the DC plan. Now I am searching for answers on this question too.

In situations where the HCE's are getting large DB amounts and the NHCE's are getting the bulk of their benefits in the DC plan, I am not clear whether the IRS would consider this currently available. That old facts and circumstances is a bear to interpret. And of course effective availability can't substantial favor HCE's.

[Guest rgorman]

Has anyone found an out on this one?

I have a new combo plan that was signed after June 29, 2005 and the attorney has changed the vesting from six year graded to a 3 year modifies graded retro to 1/1/05 (2 year -20% and 3 year - 100% for those employed as of 12/31/06) for the DB and PS and changed to a 3 year cliff for those hired after 1/1/07. Client is not happy since they had a six year graded in the PS and had no heads up.