Top 25 LS Payout restrictions for a frozen db plan

[Guest GaryGaryGary]

I have frozen DB plan that is affected by the restrictions on LS to the Top 25 highest paid employees. Sponsor does not want to put more money in right now.

At issue here is how to determine that list

Do super duper highly paid employees hired after the plan freeze date take a place on this list or is it frozen, limited to current and fomer plan participants?

I find it hard to believe that this is a backdoor way of T25 participants getting ls distributions.

Thank you in advance.

GaryGaryGary

[Belgarath]

To aid in the discussion:

(ii) Restricted employee defined. For purposes of this paragraph (b), the term restricted employee generally means any HCE or former HCE. However, an HCE or former HCE need not be treated as a restricted employee in the current year if the HCE or former HCE is not one of the 25 (or a larger number chosen by the employer) nonexcludable employees and former employees of the employer with the largest amount of compensation in the current or any prior year. Plan provisions defining or altering this group can be amended at any time without violating section 411(d)(6).

[Guest GaryGaryGary]

Thank you. Note that it is a frozen plan. I have 3 newly hired HCE's that will displace 3 HCE's on the T25 list. These 3 have large distributions come due; it doesn't make sense to me that they can now gain access to the funds.

But, neither did junior high school.

[Belgarath]

I happen to agree with you that it makes no sense, but I'm not sure that it means you can't do it. Nor am I sure that you can. I would hazard a guess that perhaps this specific situation wasn't contemplated when the reg was written. I'd say that a legal opinion might be in order, with the apparently large distributions at stake.

[Guest Sieve]

I don't have them handy, but I believe there are some PLRs which discuss the high-25 issue in detail, and they may (or may not) deal with a frozen plan. For my 10 cents, and not knowing if there's anything else out there, the reg doesn't talk merely in terms of HCEs who are participants in the plan, so that would seem to say that all HCEs are considered--i.e., you may drop off the high-25 list as new HCEs are hired, whether or not they are/were participants.

[Guest GaryGaryGary]

You and I are in complete agreement. I wanted to see what our colleagues would say.

I am getting two opinions; one says yes, one says no, both include step by step citations of code and regulation. The one that says that the new HCE's can displace the old T25 states that when they wrote this reg the authors did not think of this "twist".

It will be interesting to see if we get any other opinions.

[Guest Sieve]

Tell your business associate/colleague that a frozen plan isn't a "twist". These 401(a)(4) regs were written, most recently, only about 15 years ago--and they certainly considered the impact of a terminated plan. Look, for example, at Treas. Reg. Section 401(a)(4)-5(a)--under which the high-25 reg resides--and notice that the reg is dealing with plan amendments "includ[ing] . . . any change in the benefits, rights or features, benefit formulas or allocation formulas under the plan." Isn't that (change in benefit formulas) descriptive of a plan freeze?

[WDIK]

The following previous thread may be of some interest (although it does not deal specifically with a frozen plan).

http://benefitslink.com/boards/index.php?showtopic=38707