401(a)(26)

[retbenser]

There are 3 participants in a DB plan: (1) Owner, (2) mother of owner, and (3) one employee

401(a)(26) requires the plan to benefit the greater of 40% or 2 employees.

Question: Can the 2 employees be the Owner and his mother?

Question: Is there any farmily attribution problem here?

Thanks for all responses.

[Andy the Actuary]

There are 3 participants in a DB plan: (1) Owner, (2) mother of owner, and (3) one employee

401(a)(26) requires the plan to benefit the greater of 40% or 2 employees.

Question: Can the 2 employees be the Owner and his mother?

Question: Is there any farmily attribution problem here?

Thanks for all responses.

You would not have 401(a)(26) issues because 401(a)(26) makes no distinction between HCEs and NHCEs. However, for 410(b) purposes, you will have issues because owner's mama will be a 5% owner by attribution and hence an HCE and the Plan would cover only HCEs.

[AndyH]

Excellent response from the Joker.

[Andy the Actuary]

Thanks Ace,

A.t.J.

[retbenser]

Thanks Ace,

A.t.J.

Thanks.

To expand the situation further, given a combined DB/DC plan. Owner and mother in DB. Owner and NHCE in DC

Here are the "aggregate" NAR (with and wihtout 401(k) deferral).

Owner: 10% (without deferral) 15% (with deferral)

Mother: 12% (without) 40% (with)

NHCE: 12% (without) 12% (with)

Question: does the combined plan pass 410(b)?

Thanks for all responses.

[Gary]

On a combined plan basis it seems fine for 410b purposes, however, you need to determine that it passes 401a4 on combined plan basis.

[Gary]

actually in looking back at the numbers you provide, it seems fine for passing 401a4 ratio test.

Only apparent issue would be 401k adp test. if a 401k safe harbor provided than it would seem good.

[AndyH]

Not necessarily.

Mom may (probably does) have an MVAR above 12%, in which case it flunks a(4) but passes 410(b).

[retbenser]

Thanks for all the responses.

Here is how I look at the 401(a)(4) issue:

The plan cannot pass the ABPT since the ABP% is less than 70%. This happens because the mother has low pay while maximizing her 401(k) deferral. To pass the 401(a)(4), both rate group must therefore pass the 70% ratio test; thereby bypassing the ABPT option. Since the NHCE has accrual rate (normal and mvar) equal or greater than both the HCEs, the ratio test for both rate groups exceed 70%. So 401(a)(4) passes.

What about 410(b)? How do you show 401(b) compliance? Do you use the same analysis as above?

Thanks.

[AndyH]

Regarding 410(b), you are aggregating plans so you have a 100% ratio/percentage. Everybody benefits.

Regarding 401(a)(4), I agree with you IFF Mom's NAR AND MVAR are less than or equal to 12%

[retbenser]

Regarding 410(b), you are aggregating plans so you have a 100% ratio/percentage. Everybody benefits.

Regarding 401(a)(4), I agree with you IFF Mom's NAR AND MVAR are less than or equal to 12%

Thanks.

[Gary]

agreed. don't recall if you addressed adp test. is it 401k safe harbor?