Top-Heavy, EGTRRA, Frozen DB, and PS Plans

[SoCalActuary]

A DB plan was frozen, post EGTRRA, but the accompanying profit sharing plan stated that the top-heavy minimum benefits would be provided in the DB plan. The combined plans are 95%+ top-heavy.

Since the DB was frozen, the employer has not made any profit sharing contributions.

Other than the document problem with the PS plan, does anyone think that the DB must be unfrozen?

Can we amend the PS to provide a 3% TH minimum? Can we provide that 0% is the TH when no key employees are benefiting?

Any other thoughts?

[david rigby]

... the accompanying profit sharing plan stated that the top-heavy minimum benefits would be provided in the DB plan.

Is this an absolute, or is there conditional language in the PS plan, in case the DB plan is unable to provide the TH accrual?

[Andy the Actuary]

Where is the issue? The frozen DB does not have to provide TH accruals and since no PS contributions were made, the contributions to key employees was 0%, so no TH contributions would need to be made under the PS plan. Those complicated provisions of IRS Reg. 1.416 appear to apply when benefits are being accrued.

[Kimberly S]

Does the profit sharing plan have a 401(k) feature? If so, you could be on the hook for a TH minimum due to deferrals or match going to the key employees.

[Mike Preston]

Does the profit sharing plan have a 401(k) feature? If so, you could be on the hook for a TH minimum due to deferrals or match going to the key employees.

If'n it had a 401(k) feature and SoCal didn't mention it, I would think aliens had invaded his body and taken control of his fingers.

[ak2ary]

Which never happens in Jamaica but just might on a Wednesday in SoCal

[SoCalActuary]

Thanks all for your viewpoint. The key point was that the DB plan stopped accruing, so the combo rules changed. And, yes, 401(k) would have been relevant, thank you.

To my friends nationally, although Philly might have better weather than Sacramento today, normally I would pick Orange County, CA weather over either one. But I might consider the smoking rules and choices in Jamaica as an even better option on some days.