extra contribution for former DB participants

[mariemonroe]

Employer sponsors DB plan and 401(k) Plan. Employer terminates DB plan and wants to amend 401(k) plan to provide that 401(k) participants who were former DB participants are entitled to an extra contribution. Is this OK as long as the plan passes 410(b)?

[ERISAnut]

Yes, as long at it passes 410(b) and non-discrimination. Each formula under the plan should, generally, pass 410(b).

[K2retire]

Wouldn't you also need to pass 401(a)(4)?

[Jim Chad]

I think ERISAnut is saying that the way to pass 401(a) is to have each separate benefit formula pass coverage. This is the method cross testing uses to pass 401(a). Of course in cross testing you are setting up rate groups based on EBARs. This would be like rate group testing on an allocation basis.

Our industry language is very confusing here. The way I finally got this straight in my mind was to do a couple of dozen practice problems with a calculator.

[ERISAnut]

I think ERISAnut is saying that the way to pass 401(a) is to have each separate benefit formula pass coverage. This is the method cross testing uses to pass 401(a). Of course in cross testing you are setting up rate groups based on EBARs. This would be like rate group testing on an allocation basis.

Our industry language is very confusing here. The way I finally got this straight in my mind was to do a couple of dozen practice problems with a calculator.

Well done!

Just note, when you say 401(a), you mean 401(a)(4).

[Jim Chad]

There is one thing that should be clarified. The testing is a little different when testing an employer for coverage under 410(b) vs. testing an allocation group for coverage under 401(a)(4).

Here is a rough outline that might be useful.

The math used in the ratio percentage tests is the same.

Average Benefit Test (ABT)

410(b) The first part of the ABT is the Safe Harbor Percentage Test (If you are brave you may try the Unsafe Harbor Percentage test)

401(a)(4) The first part of the ABT uses the Midpoint

The second part of the ABT is called the Average Benefit Percentage Test (ABPT) and is the same for 410(b) and 401(a)(4)