Document vs Implementation

[retbenser]

A DB plan covers 40% of eligible participants (per 401(a)(26).

The plan is combined with a DC plan for nondiscrimination testing purposes.

However, the DB plan document does not reflect the fact not every one is benefiting (i.e., only 40% are accruing).

This problem occurs for current and prior plan years.

Question: To amend the plan, does the plan sponsor have to go through VCP? Or can sponsor amendment without IRS submission?

Thanks for all responses.

[John Feldt ERPA CPC QPA]

Can the DB plan pass 410(b) when it is combined with the DC plan? If so, 401(b) passes.

Can the DB plan pass 401(a)(4) when it is combined with the DC plan? If so, 401(a)(4) passes.

If the DB plan also passes 401(a)(26) by covering at least the 40%, what amendment is needed?

[frizzyguy]

Do you mean that the Defined Benefit Plan sometimes passes and sometimes fails 401(a)26 depending on the testing rate? If that is what you mean, then you can simply amend the Defined Benefit formula to pass 401(a)26. This is fairly common, especially as of late.

[retbenser]

Can the DB plan pass 410(b) when it is combined with the DC plan? If so, 401(b) passes.

Can the DB plan pass 401(a)(4) when it is combined with the DC plan? If so, 401(a)(4) passes.

If the DB plan also passes 401(a)(26) by covering at least the 40%, what amendment is needed?

Thanks.

But is it not the case that the Plan Document must state who is participating (the 40%) and who is not (the 60%)?

[John Feldt ERPA CPC QPA]

Wow, the plan document does not define who is eligible? And/or after that it doesn't define who gets the accruals? If it doesn't do that, then yeah, that's a problem. How did the valuations get done in the prior years?

[david rigby]

But is it not the case that the Plan Document must state who is participating (the 40%) and who is not (the 60%)?

Yes, ususally by defining groups (division A but not divison B; those with green hair but not those with orange hair).

[Effen]

However, the DB plan document does not reflect the fact not every one is benefiting (i.e., only 40% are accruing).

Can you be more specific about this? Who does the db plan state IS benefiting?

In order for the plan to be qualified the benefit must be definitely determinable. In order to be definitely determinable, it must first define specifically who is eligible.

If the plan does not exclude certain employees, then most likely the plan covers everyone. If the plan as written covers everyone, I don't think the IRS will let you go back and say you meant to exclude them. They tend to go by what the plan says, especially if it means you are potentially taking benefits away from NHCEs.