Accrued-to-Date combo testing

[John Feldt ERPA CPC QPA]

We started using the accrued-to-date method for testing under 401(a)(4) for a takeover DC plan that is about 10 years old - it's working great so far (a couple younger owners can now also max out). The client is about to add a DB plan.

A couple of questions:

1. Can the entire combined benefits be divided by the largest number of years in either plan (aggressive I think), or should each plans' EBARs be determined separately and then added together (my preferred suggestion), where the total DB plan benefits accrued are divided by the number of years in the DB (ignoring any prior years before the DB was added as a plan).

2. If any rollover balances exist in the DC plan for some NHCEs, should they be ignored?

[SoCalActuary]

You have choices for the first question.

If you consider the effect of all plans for all years, then you count all years of benefit accrual.

You could also separate the effect of "old money" from the effect of "new money" by splitting the DC accounts based on the accumulated value of their past contributions. This would involve tracking the past growth of the accounts, if you do this right.

Then you could test these on a fresh-start basis from some point in the past.

Annual accrual testing is sort of like that, where you only consider the fresh-start from the beginning of your testing year.

The rollovers are part of the package if they came from plans of the same employer. If they came from another plan of another employer, or from IRAs or 403b, then you should exclude them.

I recommend that you attend a Larry Deutsch seminar, usually in February when the weather in Iowa is "too interesting", to get a much deeper view of your testing choices.

[John Feldt ERPA CPC QPA]

February? Heck, we had about an inch of snow only a couple weeks ago. Then an earthquake in Illinois, making all the worms come out of the ground (or was that the rain?) - global worming.

I've been to one of Larry's conferences a couple years ago. I hope to go to another as soon as the IRS issues guidance on a fixed rate for a cash balance plan (or a statutory hybrid something or another - whatever the IRS calls them now).