using DB surplus assets to fund 401(k) match

[Guest jdw]

Church group client has overfunded DB plan they want to convert to cash balance. Plan is overfunded. To sweeten conversion, they want to set up a 401(k) plan but make matching contributions to a 414(k) account in the (converted) cash balance plan, using the excess assets. PLR 9723033 addresses the issue for an apparently for-profit plan sponsor, but some of the analysis wouldn't apply to a church group.

Any ideas? Their backup plan is to take a reversion and contribute 100% to the 401(k) plan as pre-funded match, since they don't think they're subject to 404 limits or 4980 excise tax.

[Guest]

You may want to check in the 401(k) Regs. I'm not sure of the exact cite, but there is a Reg. that states that no db accrual can be tied to participation/deferrals in a 401(k) Plan. I don't know if your church group would be exempt. Since your cash balance plan is a db plan, you should check this cite before proceding.