404(a)(7) - Q&A 9 - DB/DC Deduction Limits

[carrots]

IRS Notice 2007-28 Q&A 9

Assuming the DB contribution exceeds 25% of compensation, in an owners-only DB/DC situation, is the maximum total deductible contribution for 2009 equal to:

1. the maximum DB deductible under 404(o), plus $16,500 employee deferral, plus $5,500 catch-up (if possible), plus 6% employer match, or

2. the minimum required DB contribution (but not less than the 430©(4) Funding Shortfall), plus $16,500, plus $5,500, plus 6%?

If the answer is 2, is the normal approach to eliminate the 6% match, so that the total maximum is the maximum DB deductible under 404(o), plus $16,500, plus $5,500?

[SoCalActuary]

Choice 1 is your answer.

It was in the Solomon letter in summer of 2007 and WRERA finalized it.

[carrots]

Choice 1 is your answer.

It was in the Solomon letter in summer of 2007 and WRERA finalized it.

Thanks, SoCalActuary! It's right there in Section 108© of WRERA! Excellent!

[Calavera]

Wouldn't your DB contribution be limited to the greater of a minimum required contribution or an excess of Funding Target over Plan Asset (i.e. no 50% cushion and no normal cost)?

[SoCalActuary]

Wouldn't your DB contribution be limited to the greater of a minimum required contribution or an excess of Funding Target over Plan Asset (i.e. no 50% cushion and no normal cost)?

Start with the determination that the DC contribution does not exceed 6% of eligible payroll for the DC plan.

If that is true, ignore the entire DC contribution, and proceed on the DB funding as if it stood alone.

[Calavera]

Sorry, I misred the original post as "Assuming the DC contribution...". So, just to confirm, if DC contribution is over 6%, then DB contribution is limited to the greater of a minimum required contribution or an excess of Funding Target over Plan Asset (i.e. no 50% cushion and no normal cost). Correct?

[carrots]

Sorry, I misred the original post as "Assuming the DC contribution...". So, just to confirm, if DC contribution is over 6%, then DB contribution is limited to the greater of a minimum required contribution or an excess of Funding Target over Plan Asset (i.e. no 50% cushion and no normal cost). Correct?

Calavera, that's what it looks like to me.

[Guest Sus95]

Sorry, I misred the original post as "Assuming the DC contribution...". So, just to confirm, if DC contribution is over 6%, then DB contribution is limited to the greater of a minimum required contribution or an excess of Funding Target over Plan Asset (i.e. no 50% cushion and no normal cost). Correct?

Calavera, that's what it looks like to me.

However, you cannot forget about the 25% combined plan limit if not a PBGC covered plan. And, the first 6% of the DC is "free", so you are really looking at 31% of pay.