DB/DC Combo Limit Question

[slburnett]

Client has a cash balance plan as well as 401k profit sharing plan, the cash balance plan is not PBGC covered.

Covered payroll is $2.3M, PPA minimum in the DB plan is $350k.

Am I correct in calculating the overall combined deductibility limit as the greater of $575k (25% of comp) or $350k, PLUS 6% of DC compensation ($138k)? So the grand total is $713k? They'd like to put 420k into the DB, and $235k into the DC, for a total of $655k, but others that I work with disagreed about the 6% DC piece on top of the 25%.

Thanks for any help -

[John Feldt ERPA CPC QPA]

You can ignore the first 6% of eligible compensation contributed into the DC plan for purposes of the combined plan deduction limit, essentially allowing you to put in 31% overall.

Assuming the eligible compensation is truly $2,300,000, and if they put in and deduct $420,000 for the DB plan (assuming that is not more than the DB maximum deductible), this leaves $293,000 for employer contributions into the DC plan. Lastly, if this $293,000 in the DC plan does not exceed 25% of eligible compensation in the DC plan, you are okay,