2 Year PS Eligibility for DB/DC Combo

[emmetttrudy]

Effective 1/1/2012 the eligibility for both the DBP and the PSP was changed to 2 years (and 100% vesting). This brought up two issues this year:

(1) The 2 year requirement in the PSP cannot apply to deferrals or safe harbor. An employee hired in 2010 entered the PSP on 1/1/2012, and gets the 3% safe harbor. For testing purposes in 2012, the combined GW turns out to be 7.5%. By virtue of receiving the 3% SH, doesn't this trigger the TH and GW contributions, and thus this participant must receive 4.5% PS contribution to get to a total of 7.5%? (Because of the two year requirement he is not in the DBP for 2012 so received no accrual).

(2) The amendment does not specify the 100% vesting applies only to PS contributions made after the effective date of the amendment. So, what about a participant who terminated in 2011 that was 40% vested, and has not taken a distribution yet? Is he now 100% vested in his PS contributions, or still 40%?

[mattmc82]

a more effective design would be 3 plans, a k with 1 yr , and a PSP and DBP with 2. you're stuck now.

[John Feldt ERPA CPC QPA]

Assuming the plans are required to be aggregated for coverage and for 401(a)(4), assuming a gateway minimum is the best option for passing 401(a)(4), assuming the TH minimum is provided in the DC plan, and assuming the highest HCE aggregate rate exceeds 35% of compensation:

1) Yes, by what you've described, it seems that a total 7.5% allocation is required for this participant. As to mattmc82's comment, by virtue of the plans being top heavy, wouldn't the TH minimum apply even to a separate 401(k) plan with just 1 YOS, which then triggers the TH minimum and the gateway contribution? What did I miss?

2) If the amendment was not clear that the change in vesting only applies to participants with one hour of service on/after the effective date of the amendment, then that terminee could be 100% vested. However, be sure to go back into the plan document itself to the vesting section and/or to the amendments section to see if it already has language saying something like "in the event this section or the vesting section is ever amended, the new provisions only apply to participants with one hour of service on/after the effective date of the amendment unless the amendment states otherwise." Let us know what you find.

[emmetttrudy]

the BPD does say the change in vesting only applies to someone who has at least one hour of service after the effective date of the amendment. thanks John.