Top Heavy Calculation

[emmetttrudy]

Plan Sponsor has a 401k PSP and CBP. The vesting service for the CB Plan started at the effective date of the CB Plan (1/1/2010) so as of the determination date for TH testing (12/31/2011) there were no vested benefits in the CBP. When performing the TH test do you look at the present value of the vested accrued benefits (in this case, all $0)? Or the present value of the benefits without regard to vesting?

Also, the CBP uses a BOY valuation date. For determining if the Plan is top heavy in 2012 is it ok to use the 12/31/2011 401k balances and the 1/1/2011 benefits in the CBP? Or do the CBP benefits need to be projected forward to 12/31/2011?

[david rigby]

When you searched IRC 416 and Reg. 1.416, did you find anything about vested benefits?

[emmetttrudy]

No, but I also don't find anything about what date I am required to use accrued benefits from for a DB Plan with a BOY valuation date.

[SoCalActuary]

Plan Sponsor has a 401k PSP and CBP. The vesting service for the CB Plan started at the effective date of the CB Plan (1/1/2010) so as of the determination date for TH testing (12/31/2011) there were no vested benefits in the CBP. When performing the TH test do you look at the present value of the vested accrued benefits (in this case, all $0)? Or the present value of the benefits without regard to vesting?

Also, the CBP uses a BOY valuation date. For determining if the Plan is top heavy in 2012 is it ok to use the 12/31/2011 401k balances and the 1/1/2011 benefits in the CBP? Or do the CBP benefits need to be projected forward to 12/31/2011?

Your CB plan document describes the date for measurement of the TH numerator and denominator. That measurement is then used in combination with the other plan. If they ahve different measurement dates, just live with it.

Vesting is not the same as accrued benefit. Ignore vesting for this calculation, except for any terminated employees before the measurement date. You can apply the vesting to their benefit if they have already left by that time.

[frizzyguy]

§1.416-1. T-25 Q. How is the present value of an accrued benefit determined in a defined benefit plan?

A. The present value of an accrued benefit as of a determination date must be determined as of the most recent valuation date which is within a 12-month period ending on the determination date. In the first plan year of a plan, the accrued benefit for a current employee must be determined either (i) as if the individual terminated service as of the determination date or (ii) as if the individual terminated service as of the valuation date, but taking into account the estimated accrued benefit as of the determination date. For the second plan year of a plan, the accrued benefit taken into account for a current participant must not be less than the accrued benefit taken into account for the first plan year unless the difference is attributable to using an estimate of the accrued benefit as of the determination date for the first plan year and using the actual accrued benefit as of the determination date for the second plan year. For any other plan year, the accrued benefit for a current employee must be determined as if the individual terminated service as of such valuation date. For this purpose, the valuation date must be the same valuation date for computing plan costs for minimum funding, regardless of whether a valuation is performed that year.

Hidden in plain sight.