DB/DC 401(a)(4) Testing Age

[Rob P]

Do we have a problem or am I just over thinking this? We are aggregating a PS and an offset DB for testing purposes under 401(a)(4). The PS normal retirement age defined in the document is 55 and the DB normal retirement age is 65. The plan covers the same participants.

1. For testing purposes I am assuming this is one plan with a non-uniform normal retirement age. As such, under 1.401(a)(4)-12 I am assuming that I must use a Testing Age of 65. Is this correct? What worries me is that I have the same participants with multiple retirement ages and that doesn’t seem to be specifically addressed.

1. Assuming (1) above is correct and I must test at 65. Are there any special adjustments that I am supposed to make to the PS contributions to test at 65? I would assume that it is simply the EBAR calculation at 65 using interest to 65 and an age 65 APR.

Note that I have seen prior threads but all seem to deal with a DB NRA less then the DC NRA which would create different normalizing issues.

Any input is appreciated.

[Tom Poje]

as I understand the rules, you calculate the DC to age 55 using the DC assumptions, then use the DB assumptions (interest rate, mortality) out to age 65.

[Rob P]

So we must use independent test ages? I will definitely have the employer amend the DC to 65 but I am stuck with two different testing ages for now? That may hurt a little.

[John Feldt ERPA CPC QPA]

Most likely you hope to project the DC numbers to age 65 to utilize the 8.5% projection rate for the extra 10 years. So when you start looking at a DB/DC proposal, a request to amend the PS plan's NRA might be recommended when this is found. Certain odd situations may differ, but if the amendment makes sense for a client, be sure the rights at the old NRA are preserved for the benefits already accrued.

[figure 8]

I just wanted to revisit this old thread about when the DC plan NRA is lower than the DB plan NRA. The example posted here was DC NRA is 55 and DB NRA is 65.

I'm questioning why you can't increase the DC benefit to the testing NRA at the testing interest rate.

When the DB NRA is lower than the DC NRA, you take the DB benefit at DB NRA, and then convert that to a benefit at testing age using testing interest and mortality.

If the DB and DC plans have the same NRA, you use testing factors to convert the DC benefit to an accrual, not the DB factors.

Basically, it seems like you should always end up using testing interest and mortality to convert to a testing age accrual.

So in the example posted here, why would you use the DB assumptions instead of the testing assumptions for those last 10 years? In other words, why not simply use the testing assumptions from current age to testing age for the DC benefit?

I bring the topic back up because I haven't been able to find anything that gives me a clear answer. Perhaps there is no clear answer. Perhaps I'm thinking about this all wrong, in which case I'm happy to be enlightened.

[AndyH]

FWIW, I would use the testing assumptions to project the DC to 65.

[figure 8]

Thanks, Andy. I've been having trouble understanding how one would justify doing it any other way.