DB/DC Combo Deduction - Another Look at 404(a)(7)

[ubermax]

Looking at 404(a)(7)©(iii)(II) , i.e. "if such contributions exceed 6% of such compensation, this paragraph shall be applied by only taking into account such contributions to the extent of such excess".

to me this says that ,in the case where DC contributions exceed 6% of comp , the combined limit of 404(a)(7)(A) only applies to the total DB contribution plus the excess DC contributions rather than the entire DC contribution ; another view that I'm aware of considers the entire DC in applying the combined limit of 404(a)(7)(A).

I feel that the implication here is that the DC contributions <= 6% fall under the individual DC limit of 25% of comp & hence are deductible separately under that limitation.

thanks in advance to those who respond .

[John Feldt ERPA CPC QPA]

The 25% of pay deduction limit thus ignores the first 6% of pay going into the DC plan (of employer money).

Effectively, this makes your combined plan maximum deduction equal to 31% of eligible compensation. Or if you prefer, after ignoring the 6% in the DC plan (since it is deductible), the additional remaining combined plan maximum deduction is now equal to 25% of eligible compensation.

[frizzyguy]

I feel that the implication here is that the DC contributions <= 6% fall under the individual DC limit of 25% of comp & hence are deductible separately under that limitation.

You may have been saying this but I just wanted to spell it out one more time. If you contribute 6% or less to the DC plan, you can contribute up the individual plan defined benefit maximum in the defined benefit plan. This limit when combined with the 6% to the DC plan is, often times, greater than 31% of pay.

Also, the combined plan limit only applies to plans NOT covered by the PBGC. If a plan is covered by the PBGC than feel free to deposit 25% of comp to the DC and the maximum to the DB.

Am I forgetting anything here?

[ubermax]

let's put numbers on it - say I want to put 15% into my DC - what I'm taking away from 404(a)(7) is that I can deduct 6% of that 15% and the 11% balance plus my anticipated DB contribution is compared to the combined limit , 404(a)(7)(A) for deductibility - I've heard another viewpoint that once the DC contributions exceed 6% you compare the entire 15% plus the DB against that combined limit.

I'm just want to know how others are reading/interpreting 404(a)(7) .

[frizzyguy]

let's put numbers on it - say I want to put 15% into my DC - what I'm taking away from 404(a)(7) is that I can deduct 6% of that 15% and the 11% balance plus my anticipated DB contribution is compared to the combined limit , 404(a)(7)(A) for deductibility - I've heard another viewpoint that once the DC contributions exceed 6% you compare the entire 15% plus the DB against that combined limit.

I'm just want to know how others are reading/interpreting 404(a)(7) .

If you put in 15% into the DC plan, you can put an amount equal to 16% into the DB plan. This 31% is the deductible limit.

[frizzyguy]

Also, can we assume that this is for a non-PBGC covered DB plan?

If the DB plan is covered by the PBGC than if you contribute 15% into the DC plan you can contribute the DB deductible maximum into the DB plan. The combined plan limit doesn't apply.