401a26 for owners only

[Guest Deflector]

I have a plan with an owner and a child, who would both be eligible. The owner only wants the plan for themselves, but I am concerned about meeting 401a26, mainly the "at least 2" part of it. Is there an exception since it is only owners/family or do I need to include both the owner and child.

[Effen]

Sorry, but could you be clearer. You said "owner and a child", which implies 2 individuals, but then you say "owner only wants the plan for themselves", which implies more than one owner. Then you say "it is only owners/family" which implies multiple owners and multiple children.

Also, how old is the child? If they are under 21, you may be ok

Other than that, I think "2" means "2".

[JAY21]

Any chance they could keep the child's hours of service below 1000 so the child is an excludable employee from testing.

[Guest Deflector]

There is only one owner and one child that is around age 30. The owner wanted to exclude the child, but I think you are saying what I figured, that if the child meets eligibility than they would have to be included, since "2 means 2".

Trying to keep the child with less than 1000 hours seems like my only option, but I wanted to make sure I wasnt missing anything first, since the client may not like this option.

Thanks.

[JAY21]

One option would be to put in multiple formulas and only put the child (age 30) in at 0.5% accrual rate (don't have to have the same benefit formula for owner and child). That obviously doesn't totally exclude the chlid but at least it keeps the costs very modest and passes 401(a)(26).

[Blinky the 3-eyed Fish]

Just to be clear the child had to be kept at under 1,000 hours in the past. It does you no good to keep him under 1,000 hours now if in the past he worked over 1,000 hours and met the eligibility requirements. Since the OP stated the child would be eligible it seems the hours consideration ship has sailed.

[Guest Deflector]

Staying under 1000 hours has pasted and is not an option for other reasons. I think we are going to do multiple formulas. Thanks all.

[david rigby]

... we are going to do multiple formulas.

Will this cause a failure under 1.401(a)(26)-3?

[jkdoll2]

Can you tell me in the rules where it says the "at least 2" part. Thanks

[SoCalActuary]

... we are going to do multiple formulas.

Will this cause a failure under 1.401(a)(26)-3?

This does not say "multiple trusts" nor does it imply multiple asset pools. The plan has a single trust but with different rates of benefit accrual, which in this case discriminates between two HCEs only. How does this have anything to do with prior benefit structures? You design these formulas so that the minimum accrual rate meets the rules for meaningful benefits.

[SoCalActuary]

Can you tell me in the rules where it says the "at least 2" part. Thanks

Try looking at IRC 401(a)(26)(A)(ii)(II)

"such trust benefits at least ...." "2 employees"

[david rigby]

How does this have anything to do with prior benefit structures?

No discussion about trusts or asset pools. Not sure what you mean.

Does changing the current benefit structure (in this case, for the purpose of impacting one person) create a prior benefit structure? (I don't know, just asking.)

[SoCalActuary]

How does this have anything to do with prior benefit structures?

No discussion about trusts or asset pools. Not sure what you mean.

Does changing the current benefit structure (in this case, for the purpose of impacting one person) create a prior benefit structure? (I don't know, just asking.)

Typically, this issue arises only for frozen plans. An amended on-going plan with a non-discriminatory benefit structure would be designed to meet the rules for meaningful benefits. Each year, it provides a benefit structure designed to meet 401(a)(26) rules. Only worry about the prior structure after the plan is frozen.