DB/DC Combo - frozen DB

[John Feldt ERPA CPC QPA]

Cash balance plan has just been frozen. 401(k)/PS not frozen. Top heavy has been provided in the 401(k)/PS. Keys are deferring at least 3%.

With the DB frozen, does the 5% TH allocation requirement change to 3%? If so, where is that cited?

[Andy the Actuary]

In 1.416-1 M12-A, "Since the defined benefit minimums are generally more valuable, if each employee covered under both a top-heavy defined benefit plan and a top-heavy defined contribution plan receives the defined benefit minimum, the defined benefit and defined contribution minimums will be satisfied." Further, "If the contributions and forfeitures under the defined contribution plan equal 5% of compensation for each plan year the plan is top-heavy, such minimum will be presumed to satisfy the section 416 minimums."

By the DB Plan being frozen (for the whole year), employees do not benefit under 410(b). I.e., while they are participants, they are not "covered" and in fact -- absent the DC plan -- would be not be precluded by the DB participation alone from making a deductible IRA contribution.

Thus, while I was unable to locate a direct answer (e.g., IRS Gray Book), the 3% seems appropriate since there are no "more valuable" DB benefits. It would, however, be surprising if this question has not surfaced before.