Floor offset plans

[FAPInJax]

A floor offset plan is established and an employee after several years develops an accrued benefit (net of the offset) which is $1,000.

Can this benefit be decreased in subsequent years due to the following:

1 No additional accruals in the DB (for some reason) but the DC balance is increasing.

2 Better than average investment results in the DC

OR must the $1,000 be grandfathered.

Thanks for any and all comments.

[Mike Preston]

It depends on how the plan is worded. If the plan is worded "properly" then there is no reason why the accrued benefit can't be reduced due to the factors you mention. I would also suggest that the plan would be in a better position if it had an LOD on the language.

[Guest merlin]

If the DB accrual is frozen, the offset is frozen as well. Q&A 5 from 2005 ASPPA.

[Guest Harry O]

merlin,

Interesting Q&A.

Can you post the entire Q&A?

Thanks.

[Guest merlin]

"Q. If accruals are frozen in the db portion of a floor-offset plan, may the frozen accrued benefits be reduced as the dc account balances continue to increase? Would that approach violate 411(d)(6)?

A. This would be a violation of 411(d)(6). When you freeze an offset plan you also freeze the offset (expressed as an accrued benefit). This will be discussed from the Podium."

I don't remember it being discussed any further from the podium.

[Guest Harry O]

i'm not sure I agree with the IRS on the 411(d)(6) issue. But it most certainly depends what the plan document says.

[Guest merlin]

Why do you have a problem with the IRS answer? It seems to make sense that a frozen benefit is fixed at a point in time with respect to both increases and decrease.

[Guest jdizon]

District court ruled that in coordinating earlier distributions with later benefit accruals in a defined benefit floor offset plan, Xerox’s plan had violated ERISA. Floor offset plans coordinate benefits from a defined contribution plan and a defined benefit plan, typically reducing benefits under the defined benefit plan by the balance in the defined contribution plan. If the defined contribution account has a higher present value than the defined benefit plan, the participant receives no benefit from the defined benefit plan. Custom Floor Plans