415 increases in frozen plan?

[Belgarath]

I don't even know if such a scenario is possible, but here goes:

Suppose you have a DB plan, where under the plan formula, the participant has accrued a benefit in excess of the 415 dollar limit. Naturally, the participant cannot receive payments in excess of 415. Plan is now frozen. Can the frozen plan provide for an increase in this participant's benefit solely due to increases in the 415 dollar limit, or does frozen mean FROZEN so that the participant's benefit payable cannot increase over the dollar amount in effect as of the freeze date of the plan?

Thanks.

[AndyH]

I think it could be done as you describe as part of a bonafide COLA provision that applies to all participants.

If you just want to increase benefits for people who are at 415, though, I would think this would be a non-frozen, perhaps discriminatory benefit enhancement that would have to be general tested.

[Effen]

I think it depends on what the freezing amendment said. If the benefit was restricted by the 415 limit and not the formula, the fact that the formula benefit was frozen doesn't necessarily mean the persons benefit doesn't go up when the 415 limit increases. The document needs to define the benefit.

When you apply the benefit formula in the document after the accruals have been frozen, what do you get? I have seen some amemdments freeze the 415 benefit and some that didn't.

[ak2ary]

While you could, I think, have a freeze that allows 415 increases (limited to the actual plan-formula benefit) , you better pay attention to 1.410(b)-3 and corresponding 1.401(a)(26)-5.

Essentially, if you have a general test plan that limited benefits to the 415 limit for purposes of the test, then for 410(b) and 401(a)(26), increases in the 415 limit are benefit accruals and those who receive them (likely HCEs) will be benefiting for the year of the increase. This would likely cause both a 410(b) and 401(a)(26) failure in small plans.

I think the service would also raise this issue if the plan counted yrs of service or participation during the period between freeze and ASD for purposes of the ten year phase-in.

[Belgarath]

Thanks all. This clears it up.

[AndyH]

Belgarath, I'm glad your question was apparently answered, but I am puzzled.

I agree with ak2ary that 1.410(b)-3 is on point but the interpretation that increasing benefits only for 415 is ok in a general tested frozen plan but not ok in a safe harbor frozen plan is, as Spock would say, highly illogical, since a frozen plan need not be tested under the general test.

Further, would this mean that any frozen plan that had anybody at 415 even years ago can be amended to increase benefits only for those that had been at 415, but only if the plan was a safe harbor before being frozen? And such amendment is ok even if it affects one person?

It seems to me that this interpretation is too narrow. I can't see how the language in 1.410(b)-3 was intended to be interpreted in that manner.

Thoughts?

[ak2ary]

Andy--- I hope I didn't say what you wrote. If anything, I would argue that in a safe harbor plan, the total benefit is already taken into account and 415 increases could be recognized ( but I haven't looked that closely) .. of course if 401(a)(17 changes are recognized post freeze you have actual benefit accruals

If the plan was unfrozen (for 415 only) after years of being frozen is an interesting issue..there are timing issues under (a)(4) probably... but it kinda seems doable off the top of my head

[ak2ary]

a frozen plan, which provides 415 increases post freeze and tested the 415 limited benefit pre-freeze, does have to be tested uncder 401(a)(4)..you just never get there cuz you failed 410(b) and 401(a)(26). but a safe harbor frozen plan with 415 increases may not need any testing at all...

[AndyH]

a frozen plan, which provides 415 increases post freeze and tested the 415 limited benefit pre-freeze, does have to be tested uncder 401(a)(4)..you just never get there cuz you failed 410(b) and 401(a)(26). but a safe harbor frozen plan with 415 increases may not need any testing at all...

Tom, isn't "a safe harbor plan with 415 increases" a plan that has accrued benefits in excess of 415 before the freeze - and isn't that one of Jim Holland's favorite pet peeves- that such an animal does not exist? Or has his opinion evolved on that subject and I missed it?

Either that or we are discussing taking a safe harbor plan and adding benefits only for select (415 victims) people, which obviously (I think) would not fly.

[ak2ary]

Honestly. I don't think that I have ever heard Jim complain about that...but that doesn't mean much...he gives alot of talks I don't hear

It seems to me that under (a)(4), 410(b) and (a)(26) in a frozen safe harbor plan that applies the 415 limit as of the eventual ASD, nobody is benefiting throughout the freeze...at least that's what the rules say.

Perhaps Mr. Poje could add this to the list of DB questions at ASPPA annual?