Frozen Floor-Offset Plan

[Dougsbpc]

Suppose you have a DB plan that is offset by the employer account balance in a PSP. Then lets say the DB plan is frozen for two years and then unfrozen. When the DB plan is unfrozen can the full employer account balance in the PSP be used as the offset? Keep in mind contributions to the PSP continued when the DB plan was frozen.

I would think the DB accrued benefit when frozen would have to be grandfathered otherwise you would have a 411(d)(6) violation. But once benefit accruals resume, could the full account balance be used for the offset provided that offset never reduced the grandfathered accrued benefit from when the plan was frozen?

For example, a participant accrues a benefit of $1,000 / mo for 4 years. AB = $4,000 reduced by act. equiv. of PSP account of $900, adjusted AB = $3,100. DB plan is then frozen for 2 years with a grandfathered AB of $3,100. When the plan resumes accruals (after the first year), AB = $5,000, act equiv of PSP account is now $1,400 leaving an adjusted AB of $3,600.

[tymesup]

I'd be concerned whether the amendment is discriminatory.

[Dougsbpc]

Do you mean the amendment to resume benefit accruals?

Suppose the full DC account balance were used for the offset but no participant grandfathered accrued benefit was reduced when the plan was frozen. Also both plans are general tested on an accrued to date basis and pass the year benefit accruals resume.

The only choice in the document for an offset DB is to offset the benefit by the act. equiv of the vested account balance in the DC plan.

[tymesup]

Do you mean the amendment to resume benefit accruals?

Suppose the full DC account balance were used for the offset but no participant grandfathered accrued benefit was reduced when the plan was frozen. Also both plans are general tested on an accrued to date basis and pass the year benefit accruals resume.

The only choice in the document for an offset DB is to offset the benefit by the act. equiv of the vested account balance in the DC plan.

Yes. Did anybody work while the DB was frozen and leave before it was thawed out?

Perhaps there's a Fresh Start somewhere in the document? We needed to do something similar where Fresh Start was helpful.

[Dougsbpc]

Tymesup

Thanks for your comments.

In this plan the same benefit formula would be used as prior to the freeze. I think 1.401(a)(4)-5 permits a safe harbor for an amendment that credits benefits attributable to prior years. I believe it allows up to 5 prior years.

[tymesup]

You're welcome.

The past service credit is more typically used for a new plan with an old employer. This situation may depend on the particular reviewer if you go for an FDL or get audited.