DB/DC Combo TH Testing wih DB Plan Terminated

[emmetttrudy]

A Plan Sponsor has a DB Plan and DC Plan. The DB Plan terminated 12/31/2009. Because they chose to wait for the issuance of a Determination Letter the assets were not distributed completely from the DB Plan until midway through 2011.

The Determination Date for determining whether the DC Plan is top heavy for 2011 is 12/31/2010. Do the DB plan assets/benefits still need to be taken into account in determining the top heavy status (i.e. the two plans are aggregated?). Or is the DC Plan tested on its own since the DB Plan terminated in a prior year?

[ETA Consulting LLC]

No Key Employees "benefited" under the DB plan during 2010; so it should be reasonable to make the Top Heavy minimum to only the DC plan.

Good Luck!

[SoCalActuary]

No Key Employees "benefited" under the DB plan during 2010; so it should be reasonable to make the Top Heavy minimum to only the DC plan.

Good Luck!

But this is not about the benefit. The OP is about the determination.

[ETA Consulting LLC]

No Key Employees "benefited" under the DB plan during 2010; so it should be reasonable to make the Top Heavy minimum to only the DC plan.

Good Luck!

But this is not about the benefit. The OP is about the determination.

I'll let you in on a secret, I'm slow; SOMETIMES

[emmetttrudy]

That seems like the practical answer, and what I thought. But when I read this from the IRS site it made me think the Plans still must be aggregated.

4.72.5.2.6.4 (03-01-2006)

Terminated and Frozen Plans

1. The determination of whether a terminated or frozen plan is top-heavy is the same as for any other plan. See Reg. 1.416–1, T–4 and T–5.

2. For IRC 416 purposes, a terminated plan is a plan that has been formally terminated, no longer credits service for benefit accruals and vesting, and distributed or is distributing all plan assets as soon as administratively feasible (generally within one year). See Rev Rul. 89–87, 1989–2 C.B. 81.

A. The plan must be aggregated with other plans of the employer if it was maintained within the last 5 years ending on the determination date of the plan under examination, and would, but for the fact that it terminated, be part of a required aggregation group.

B. Distributions from the terminated plan which have taken place during the 1-year period (5-year period in the case of any distribution made for a reason other than severance from employment, death or disability, and in determining whether the plan is top-heavy for years beginning before January 1, 2002) ending on the determination date are added back in determining whether the required aggregation group is top-heavy. If the required aggregation group is top-heavy, no additional contributions, benefit accruals or vesting is required for participants in the terminated plan, but the ongoing plans must satisfy the top-heavy rules. See IRC 416(g)(3) and Reg. 1.416–1, T–4.

3. A frozen plan is one in which benefit accruals have stopped but the plan has not distributed all the assets. If a frozen plan is top-heavy, it must provide top-heavy minimum contributions, benefit accruals and vesting. However, in a defined contribution plan, no top-heavy minimum contribution is required if no key employee receives a contribution. See Reg. 1.416–1, T–5 and IRC 416©(2)(B).

[emmetttrudy]

OK, I misread your first response. Yes, I agree the 3% TH minimum only needs to be made to the DC Plan. but the determination should be made based on the aggregation of plans.

[ETA Consulting LLC]

but the determination should be made based on the aggregation of plans.

Absolutely. Think of it like this; just because the DB terminated (and let's assume it actually distributed), the employees are still employed. So, you still have a 5 year look-back for in-service distributions.

Good Luck!

[jpm56]

How about this situation:

The DB Plan is frozen as of 12.31.10. The DC plan provides a SH Match contribution. A Key employee benefits in both plans so the plans are obviously aggregated for TH purposes.

There's no benefit formula for the 2011 plan year in the DB Plan, however a contribution is made for the 2011 plan year. Even though there's a SH Match ONLY provided in the DC plan, (With both Key's receiving the SH Match) to meet TH requirements in 2011 based on the 12.31.10 determination date, (Val dates for both plans) wouldn't the ER still have to provide a minimum 5% TH PS contribution to Non-Key's for 2011?

For the 2012 Plan Year, I would think that if only the SH Match was made by the ER, that would meet the TH requirements. I may be wrong on this.

Thanks for any assistance!

--Jeff

[emmetttrudy]

I dont think so because no one accrued a benefit in the DB plan in 2011.