Is an offset plan the best here?

[rcline46]

I was asked to do a proposal for a defined benefit plan for company that has an existing 401(k)/profit sharing/Davis Bacon plan. Now normally this does not present a problem except this is the first Davis Bacon plan I have seen with a contribution rate of about 25% on Davis Bacon wages.

When I inspect gross covered pay for the 401(k) plan vs Davis Bacon contribution it comes to 22.5% of pay. Regular profit sharing took the contribution to a full 25%.

That leaves very little to use for a defined benefit plan, whether traditional or cash balance. Since the pension plan has to pass 401(a)(26) with meaningful benefit accruals for a sufficient number of participants, a standalone plan seems out of the question as well as a plain DB/DC combo.

That leaves me with an offset plan, probably a traditional offset because of the meaningful benefit problems - that is, a formula that gives the desired contribution for the owners and see how the offset affects the rest of the contribution - which is limited due to Davis Bacon contributions.

I believe the offset can only be balances accumulated while both plans are in place. Question 1- is is possible to use all prior accumulated balances if past service is granted?

Of course this rules out using DB/DC combo testing, but it accomplishes the same goal. Question 2 - is there a better design, and if so are you willing to share it with me?

Thanks all.

[SoCalActuary]

Maybe you can tell me why the new DB plan is not going to have PBGC coverage.

What type of employer with Davis Bacon employees will be exempt from PBGC?

[Mike Preston]

Which is SoCal's way of saying: 404a7 doesn't apply any more, so you should be fine.

[rcline46]

Me thinks I have been at this too long - overlooked that part! (no 25% limit). Thanks.

Now I can focus on keeping the DB cost for the employees in line (limited) considering they are getting a substantial Davis Bacon contribution. I still think a floor/offset is most effective here due to the size of the contribution in the profit sharing plan.