401(k) on top of maxed DB

[Jim Chad]

I have been putting off taking the ASPPA DB test for years. Looks like I need to get started on it. This is the second time this has come up this month.

A prospective client is making a lot of money now. He wants to put in a DB plan and fund it to the maximum this year and next.

Can we put on a 401(k) Plan also?

Is it true that they could have a 3% SHNEC plus a 3% discretionary nonelective Contribution. Will they also be able to defer the 402(g) limit?

What is the 415 limit on a combination like this?

Also, do I need to watch out for the gateway requirements?

[ERISAnut]

Yes. You can run a 401(k) with a 6% employer contribution in conjunction with a DB plan. Also, if the DB plan is covered by the PBGC, you do not have to limit the employer contributions to 6%.

Typically, these two plans will pass non-discrimination testing on their own. However, in some instances, you may want to have a cross-tested Cash Balance Plan while using the 6% funding into the Safe Harbor 401(k) plan to make an effective DB/DC combination. This is flexible. You always need to watch-out for gateway (when no exceptions to it apply) In this instance here, the gateway is typically 7.5%.

[Jim Chad]

They are not looking at a cash balance plan, just a conventional DB.

I expect the Plans are being designed to pass all testing separately. They will cover everyone, so no there will be no coverage problems. If this is true, there will be no gateway requirements.

I may not have worded my question correctly. I am not talking about just having a DB Plan. I am talking about maxing it.

If we go to 415 maximum in the DB Plan, can I still do the 6% 401(k) Plan?

[Guest Sieve]

Yes.

Assuming DB exceeds 25% of comp, the max deduction is DB + 401(k) elective deferrals + 6% psp. The 6% PSP could be a 3% QNEC as a safe harbor & a 3% discretioanry employer contribution. With that (i.e, a safe habor 401(k) plan), the elective deferrals could be maxed.