De Minimus Funding under 415(b)?

[Guest danmar]

I'm a retirement plan consultant with no actuary experience. So, when I heard this question from one of our advisors I wasn't sure if he had his facts straight or if it was actually possible. Here's what he told me:

For a mom and pop company with no employees the husband earns the majority of the wages and pays the wife $400/year. She is 55 years old. They are looking to set up a DB plan--the advisor is telling me that the TPA says that the contribution for the wife will be ~$9,000/year. He says the "De minumus" rule under 415(B) allows for this.

Is this reasonable? What is largest DB contribution that most that a 55 year old person making $400/year could get? Thanks for your help.

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[Guest Harry O]

See IRC 415(B)(4) which permits a $10,000 annual benefit regardless of whether this would exceed the normal section 415 limit of 100% of pay.

But there is one catch -- this provision only applies if the employer *never* maintained a DC plan in which the spouse participated. Make sure this isn't a problem . . .

[Lorraine Dorsa]

I've used this de minimis provision in a number of small plans to provide a significant (relative to compensation) benefit for owners, spouses and others with minimal compensation.

It works well in plans which only have a very limited number of employees. Be wary of adding this provision to a plan which may have employees other than the owners since employee costs can be unexpectedly high if this de minimis applies to them.

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[Guest mo]

Can anyone think of a way of adding this $10,000 minimum benefit in a way that the benefit and its accrual still satisfy safe harbor rules under 401(a)(4)? Because the person I am trying to benefit is HCE but not highly paid, I am likely to fail if I have to general-test it. There are 5 or 6 rank and file employees.