non discrimination and testing

[Gary]

It is not uncommon for a plan sponsor to have a DB/DC combo plan where the plans are aggregated for testing.

Say the plan provides large DB benefits for the owner, small db benefits for the staff, but provides relatively large DC allocations for staff to pass tests.

Now say the owner goes one step further and provides lilfe insurance in the DB plan tied to the projected benefit. Of course the owner has a large projected benefit and the staff do not (as explained above).

I pose two questions.

1. Is the life insurance death benefit in any way factored in determining the accrual rate or equivalent allocation rate?

2. Would the above type of life insurance be discriminatory on its own, thus preventing plan from passing non discrimination testing?

thanks

[SoCalActuary]

It is not uncommon for a plan sponsor to have a DB/DC combo plan where the plans are aggregated for testing.

Say the plan provides large DB benefits for the owner, small db benefits for the staff, but provides relatively large DC allocations for staff to pass tests.

Now say the owner goes one step further and provides lilfe insurance in the DB plan tied to the projected benefit. Of course the owner has a large projected benefit and the staff do not (as explained above).

I pose two questions.

1. Is the life insurance death benefit in any way factored in determining the accrual rate or equivalent allocation rate?

2. Would the above type of life insurance be discriminatory on its own, thus preventing plan from passing non discrimination testing?

thanks

Plenty of discussion on this issue in different places. Just look at the insurance as a percent of pay. Is it discriminatory? If so, buy more for the NHCEs.

[AndyH]

It is not uncommon for a plan sponsor to have a DB/DC combo plan where the plans are aggregated for testing.

Say the plan provides large DB benefits for the owner, small db benefits for the staff, but provides relatively large DC allocations for staff to pass tests.

Now say the owner goes one step further and provides lilfe insurance in the DB plan tied to the projected benefit. Of course the owner has a large projected benefit and the staff do not (as explained above).

I pose two questions.

1. Is the life insurance death benefit in any way factored in determining the accrual rate or equivalent allocation rate?

2. Would the above type of life insurance be discriminatory on its own, thus preventing plan from passing non discrimination testing?

thanks

1. No. It is tested under 1.401(a)(4) -4 as a Benefit, Right, or Feature

2. No, but for testing you have one combined "plan". I don't think that NHCEs with low DB but high PS benefits, and thus relatively low insurance, could be treated unequitably. I think you would need to provide "comparable" employer paid life insurance in one plan or the other for a nondiscriminatory group of covered participants. Since in a DC plan the cost would normally come out of the participant's account, it seems to me you would need to gross it up.