Plan Freeze for Selected Participants

[Guest mingblue]

A plan sponsor wants to continue benefit accruals for participants within 10 years of normal ( i.e. 65) and freeze benefits for all other participants - (1) is this doable ? and (2) if so, what specific non-discrimination tests, if any, would be required ?

[tymesup]

You've got non-discrimination under 401(a)(4), a possible plan termination, minimum participation under 401(a)(26) to worry about. Plus 204(h) Notices.

[Andy the Actuary]

Tests under 410(b), 401(a)(26), 401(a)(4) and possible partial plan termination. If no HCE's benefiting, then 410(b) and 401(a)(4) will not be of concern. 401(a)(26) is of particular concern, especially as participants benefiting waste away. That is, at some point, test is likely to fail.

[John Feldt ERPA CPC QPA]

Even if it is a nonelecting church plan, you'll still have to pass the pre-ERISA 'participation' rules at a minimum.

[david rigby]

Tests under 410(b), 401(a)(26), 401(a)(4) and possible partial plan termination. If no HCE's benefiting, then 410(b) and 401(a)(4) will not be of concern. 401(a)(26) is of particular concern, especially as participants benefiting waste away. That is, at some point, test is likely to fail.

Depending on the size of your "non-frozen" group, (a)(26) may fail a year after the change (technically, at the end of the plan year following the plan year that contains the effective date of the change).

[Andy the Actuary]

Tests under 410(b), 401(a)(26), 401(a)(4) and possible partial plan termination. If no HCE's benefiting, then 410(b) and 401(a)(4) will not be of concern. 401(a)(26) is of particular concern, especially as participants benefiting waste away. That is, at some point, test is likely to fail.

Depending on the size of your "non-frozen" group, (a)(26) may fail a year after the change (technically, at the end of the plan year following the plan year that contains the effective date of the change).

David, that's an excellent point. I looked at one corporate plan. It has about 275 active participants of which 48 are age 55 or older (NRA=65). Another has 90 participants, of which 24 are age 55 or older (NRA=65). Another has 71 participants of which 21 are age 55 or older (NRA=65). These die right away as you suggested.

[Guest mingblue]

Suppose the frozen group of participants were viewed as a component plan and the accruing group in a separate component plan - wouldn't then the frozen group pass all the non-discrimination tests automatically and as long as the other plan represented a good cross section of highs and non-highs wouldn't it also have a good chance of passing ?

[tymesup]

Does the accruing group cover 40% of your population? If not, does it cover 50 participants? If not, the plan fails 401(a)(26) - the minimum participation test.

Another example of the feds fixing one problem and causing another.

[AndyH]

If a second (replacement) plan is established, must it grant pre-effective date service for vesting purposes to all participants?

mingblue, you can't do as you suggest for 401(a)(26) purposes. That is a 401(a)(4) technique.