DB/DC combo plans - proposed 401a4 regulations

[John Feldt ERPA CPC QPA]

The proposed regulations have a section that talks about allowing a DB/DC combo plan to utilize the average NHCE match (but not over 3%) as being counted toward the minimum gateway.

When can that portion of these proposed regulations be relied upon?

The Proposed Applicability Date section says:

Except as described below, these regulations are proposed to be applicable to plan years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers are permitted to apply the provisions of these proposed regulations except for those described in section III of the Explanation of Provisions portion of the preamble for plan years beginning before this proposed applicability date, but not for plan years earlier than those beginning on or after January 1, 2014. Accordingly, the ability to rely on a provision of these proposed regulations for periods prior to the proposed applicability date for these regulations applies to the disregard of certain defined benefit replacement allocations in cross-testing; the exception from the minimum aggregate allocation gateway with respect to certain closed plans; the special testing rule for benefits, rights, and features with respect to certain closed plans; and the rule applying the ratio percentage test to a rate group in the case of a benefit formula that does not apply to a reasonable business classification. Taxpayers may rely on these provisions (that is, the provisions that the proposed regulations would permit a taxpayer to apply before the proposed applicability date for these regulations) in order to satisfy the nondiscrimination requirements of section 401(a)(4) for plan years beginning on or after January 1, 2014, and until the corresponding final regulations become applicable.

[SoCalActuary]

It will be fun to parse down the complexity of the regulators' run-on sentences.

[John Feldt ERPA CPC QPA]

My reading is that the DB/DC combo testing using the average NHCE match toward gateway cannot yet be applied.

[SoCalActuary]

Here is a parsed version, and I read it to imply that you can use the guidance:

The proposed regulations have a section that talks about allowing a DB/DC combo plan to utilize the average NHCE match (but not over 3%) as being counted toward the minimum gateway.

When can that portion of these proposed regulations be relied upon?

The Proposed Applicability Date section says:

Except as described below, these regulations are proposed to be applicable to plan years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.

Taxpayers are permitted to apply the provisions of these proposed regulations

· except for those described in section III of the Explanation of Provisions portion of the preamble for plan years beginning before this proposed applicability date,

· but not for plan years earlier than those beginning on or after January 1, 2014.

Accordingly, the ability to rely on a provision of these proposed regulations for periods prior to the proposed applicability date for these regulations applies to:

· the disregard of certain defined benefit replacement allocations in cross-testing;

· the exception from the minimum aggregate allocation gateway with respect to certain closed plans;

· the special testing rule for benefits, rights, and features with respect to certain closed plans; and

· the rule applying the ratio percentage test to a rate group in the case of a benefit formula that does not apply to a reasonable business classification.

Taxpayers may rely on these provisions

· (that is, the provisions that the proposed regulations would permit a taxpayer to apply before the proposed applicability date for these regulations) in order to satisfy the nondiscrimination requirements of section 401(a)(4) for plan years beginning on or after January 1, 2014, and

· until the corresponding final regulations become applicable.

[John Feldt ERPA CPC QPA]

Is this then the crux for your conclusion:
Taxpayers may rely on these provisions

• (that is, the provisions that the proposed regulations would permit a taxpayer to apply before the proposed applicability date for these regulations) in order to satisfy the nondiscrimination requirements of section 401(a)(4) for plan years beginning on or after January 1, 2014

So, would you argue that a match could count toward the gateway in a DB/DC combo design could for the 2014 and 2015 plan years even though the regs weren't provided until 2016?

[SoCalActuary]

On further review, I too am uncertain, because of this language:

Taxpayers are permitted to apply the provisions of these proposed regulations

· except for those described in section III of the Explanation of Provisions portion of the preamble for plan years beginning before this proposed applicability date,

So you have to interpret section III as well.