DB plan with an accrual rate for non-owner HCEs

[John Feldt ERPA CPC QPA]

I am looking at a document that defined a big accrual rate for the owner-employees, a middle-size accrual rate for each non-owner employee who meets the definition of a highly compensated employee for the determination year, and a wee little accrual rate for everyone else.

When goldilocks receives lower compensation and thus changes from a non-owner HCE to a reguler NHCE, must she receive a 204(h) notice before her accrual formula can truly drop down to the wee little rate?

[SoCalActuary]

No 204(h) notice, because the employer did not cut back the formula.

However, the employee should have a current SPD/SMM that explains what happens when they change status.

[Andy the Actuary]

So long as all the Big Bad Wolf does is huff, and puff, and blow your house down [ooops, wrong fairy tale] and does not amend the plan to reduce benefits, it doesn't seem 204(h) would apply. However, good practice would be to advise Goldilocks lest she thow her hot porridge in your face when she discovers that baby bear, who does very little work, is getting the greater benefit because of his birthrights.

[John Feldt ERPA CPC QPA]

Yep, the explanation is right there in the storybook - I mean, in the SPD.

I am not sure the SPD defines clearly enough who/what an HCE is though - it has a reference to owners of the Employer and employees "whose compensation is in excess of of a level set by law".

[Andy the Actuary]

An NHCE is anyone who does not sleep with Pappa Bear.

[John Feldt ERPA CPC QPA]

What if goldilocks starts earning enough again to change back from NHCE to HCE? Assume the accrual rate is double for the HCE vs. the NHCE. Will the wolf declare that the plan has a 133 1/3 violation if she jumps up to that higher accrual formula?

[Andy the Actuary]

What if goldilocks starts earning enough again to change back from NHCE to HCE? Assume the accrual rate is double for the HCE vs. the NHCE. Will the wolf declare that the plan has a 133 1/3 violation if she jumps up to that higher accrual formula?

No, the wolf might apply the 3% method.

[John Feldt ERPA CPC QPA]

What if the plan is a cash balance plan?