DB/DC Aggregate Testing

[JRN]

If I aggregate a DB and DC Plan for 401(a)(4) testing, must distribution options be the same for both plans. For example, the DB Plan provides for QJSA and lump sum. Must the DC Plan also provide QJSA form of distribution?

I need help understanding Reg. 1.401(a)(4)-4(d)(4) Permissive aggregation of certain benefits, rights or features. I think this reg says that if a BRF is "inherently equal" in value to another BRF, then the two BRFs may be treated as a single BRF. In the DB/DC Combo plans we work with, I think that the QJSA and the lump sum form of benefit are equal in value, e.g., there are no subsidies for the QJSA and there are no discounts for the lump sum; the plan benefit payable as an annuity is equal to the actuarial value of the lump sum.

I think I am missing something here because I think the general consensus is that the DC Plan has to have the QJSA option. But why? Thanks.

[SoCalActuary]

I think the general consensus is that the PS plan does not have to provide the QJSA. The 401(a)(4) tests require adjustment to the most valuable benefit in the DB plan considering the QJSA. But that was all included in the math behind the a4 test. If the QJSA was a subsidized benefit, then it would have to be considered in the normalization of the DB benefit.

However, if you have different groups of participants who only benefit in one plan or the other, this might raise an issue of BRF. Remember that the PS participant can get a QJSA from their PS distribution, simply by purchasing the benefit at the time of rollover out of the PS plan. So the PS participants are not excluded from having a QJSA; it is just not subsidized.

[JRN]

Thanks SoCal Actuary.