DB/DC Combined Deductibility

[Andy the Actuary]

Mom and Pop organization has no common law employees. They sponsor DB Plan and DC plan where they defer under 401(k) and receive 6% PS contribution. In 2010, Mom retires under the DB Plan and receives in-service lump sum of her entire benefit. Mom continues in the employ of Mom and Pop full-time and continues to have compensation. My understanding is that although Mom will earn no additional benefits, Mom must continue her participation under the DB plan or we have a 401(a)(26) problem. Because of this, we cannot set up a SEP for Mom for 2011 and contribute more than 6% because she would be considered a beneficiary under both the DB and the SEP even though she's not benefiting from the DB plan in the literal sense.

Any disagreement?

[david rigby]

Isn't Mom in the DB plan anyway, by virtue of being an employee? Yes, she will have zero additional accrual, but she is a participant?

[Andy the Actuary]

Isn't Mom in the DB plan anyway, by virtue of being an employee? Yes, she will have zero additional accrual, but she is a participant?

Yup, Mom is in the DB Plan unless the Plan was amended to not cover her. That was the point, she's gotta stay in the Plan as a participant and so this will trigger the combined plan limits. The only way to get away from the combined plan limits -- it seems -- is to terminate the DB Plan (and distribute benefits).