Floor Offset Plan Participant Count

[Cloudy]

I'm looking at my first floor offset DB plan. This is a takeover. The company has 30 employees and the plan does not exclude anyone other than non-owner HCEs. Eligibility is 21 & 1.

Spreadsheets show offset calculations for the entire eligible group (all 30 eligible ee's), however only the 3 owners end up with a DB accrual after the DC offset.

The prior SB and PBGC filings have shown a participant count of "3". I would have thought that the others are participants, it's just that they get completely offset. What is the correct way to count participants in a floor offset plan?

[Andy the Actuary]

Here's what the PBGC instructions say:

"For premium purposes, “participant” means an individual (whether active, inactive, retired, or deceased) with respect to whom the plan has Benefit Liabilities."

So, no benefits liabilities would suggest do not count. You should check the definition under 401(a)(4), 410(b), 401(a)(26), IRS 5500, Annual Funding Notice, and SPD disclosures. It would not be surprising if there were some differences.

[Cloudy]

I agree. I just saw that. Thank you. Also, my original post was incorrect, the prior actuary did show the full participant count on the 5500 and SB.

[Hojo]

What I've always done in this situation is count the participants benefitting for PBGC purposes, but all participants for 5500 and Schedule SB purposes. This seems to be in line with what your prior actuary did and what Andy said.

[Rball4]

Does this kind of offset create any minimum participation issues, 401(a)(26). 40% need to receive an accrual rate of at least 0.5%.

[Dougsbpc]

Not a minimum participation issue if at least 40% benefit at least .5% per year prior to the offset. The additional requirement is that the DC plan provide uniform allocations for those who have their benefits offset in the DB plan.

[Rball4]

If I may I would like to ask a follow-up question about floor offset plans. Specifically, it sounds like you can get only the company's principals in the DB plan, and just provide the minimum gateway in the DC plan for everyone else via a uniform allocation. Am I missing something here? If it's that easy, then why don't we see these for all new small market DB plans?

[tymesup]

Two issues with floor offsets to start with. First, the DC gateway may not be enough to offset the DB benefit, particularly for older participants. Second, participants in the DC plan may get poor investment results, resulting in a DB accrual.

[John Feldt ERPA CPC QPA]

§1.401(a)(26)-5. Employees who benefit under a plan

(a) Employees benefiting under a plan

(1) In general. --Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if, for that plan year, the employee would be treated as benefiting under the provisions of §1.410(b)-3(a), without regard to §1.410(b)-3(a)(iv).

(2) Sequential or concurrent benefit offset arrangements

(i) In general. --An employee is treated as accruing a benefit under a plan that includes an offset or reduction of benefits that satisfies either paragraph (a)(2)(ii) or (a)(2)(iii) of this section if either the employee accrues a benefit under the plan for the year, or the employee would have accrued a benefit if the offset or reduction portion of the benefit formula were disregarded. In addition, an employee is treated as accruing a meaningful benefit for purposes of prior benefit structure testing under §1.401(a)(26)-3 if the employee would have accrued a meaningful benefit if the offset or reduction portion of the benefit formula were disregarded.
... etc. ...

(iii) Concurrent benefit offset arrangements

(A) General rule. --An offset or reduction of benefits under a defined benefit plan satisfies the requirements of this paragraph (a)(2)(iii) if the benefit formula provides a benefit that is offset or reduced by contributions or benefits under another plan that is maintained by the same employer and the following additional requirements are met:

(1) The contributions or benefits under a plan that are used to offset or reduce the benefits under the positive portion of the formula being tested accrued under such other plan;

(2) The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis; and

(3) The contributions or benefits under the plan that are used to offset or reduce the benefits under the formula being tested are not used to offset or reduce that employee's benefits under any other plan or any other formula.

Be sure to meet all of the conditions in (a)(2)(ii) or (a)(2)(iii).

(a)(2)(iii)(A)(2) - the employees in the DC plan benefit on a uniform basis. This can sometimes cause problems too.

[dan.jock]

Great discussion above. One last clarification...if all the non-owners are 100% offset in the DB, is the plan still covered by the pbgc? It's a plan where only owners have an accrued benefit and it is covered by the pbgc. This seems counter-intuitive but since the plan/employer would otherwise be covered, I can believe that it is covered.

[dan.jock]

Another clarification...say we use a 5% uniform allocation to offset the DB and only one older person is not 100% offset.  I'd like to use the whole PS allocation to offset that person's benefit.  That makes it not uniform.  So I think we can do it but that person cannot be considered benefiting for 401(a)(26).  If I can pass without that person, is that OK?  A strict reading of the reg seems to permit this.