Floor Offset question

[Dougsbpc]

Has anyone ever received a DL where DB benefits were offset by a profit sharing plan that has tiered language?

In this case, the employer originally had the intent of just having a profit sharing plan but then adopted a floor offset DB plan later that year. The PSP was never amended to have comp to comp allocations. However, in operation, the plan always provided uniform allocations each year.

[Mike Preston]

Yes, it isn't an issue. At least not a qualification issue.

[JAY21]

Mike, is it not an issue due to the fact in operation it has still been uniform or is it not an issue even if the allocations would have been done on different employment classifications ?

[Mike Preston]

If somebody wants to comment on 401(a)(26) they have to be a bit more forthcoming than what was initially posted. In this case, it doesn't matter because the plan that is used as the offset satisfies the definition in 401(a)(26). But let's assume, for a moment, that it didn't. We would still not have any information that makes me believe 401(a)(26) is an issue. Could it be an issue? Sure. But then the original message was woefully inadequate.

[Dougsbpc]

Mike and Jay, thanks for your comments.

In this case it is simply a matter of the employer originally just wanting a cross-tested profit sharing plan. They signed the document and a few months later (within the same taxable year) they decided to adopt a floor-offset DB. We never changed the allocation method in the psp whereby each eligible employee was his/her own group. Each year the employer contributed 10% of salary to all eligible employees (uniform allocations). The DB plan provides 6% of pay per year of participation for group A and 1% of pay per year for group B. The plans have passed 401(a)(4) and 410(b) each year. The DB plan covers more than 40% of all eligibles.

Mike, out of curiosity, suppose as Jay mentioned, a non-uniform allocation were made in year 1 to the profit sharing plan in a situation like this. Also, suppose the 1% of pay benefits are fully offset. I would think then 1.401(a)(26)(5)(2)(iii) would not be satisfied and the DB plan would fail 401(a)(26). Would this type of failure ever be correctable?

[Mike Preston]

Anything is correctible. It is just a matter of how deep into the pockets one must reach.

[Blinky the 3-eyed Fish]

The scope of "reasonable and unform" is still under debate within the IRS. Supposedly there are numerous cases in technical review but that was the case a year ago and still nothing new as far as I know. I can't imagine that operationally providing comp/total comp benefits operationally despite having a cross-tested design is an issue whatsoever. I too think an integrated allocation will prove to satisfy the criteria.

We'll see. Someday. Maybe. Sometimes I just want to know the rules.