In-Service RMD: Benefit distribution offsets

[lees]

Working on a single employer DB plan.  For a participant receiving an RMD (monthly annuity) while continuing to work, I have a question with regards to offsetting benefit distributions against continued accruals.  Citing 1988 Proposed Regulation 1.411(b)-2 as the latest (and only) governing code/regulations I could dig up.  Section (b)(4)(ii) allows for offsetting continued benefit accruals by prior benefit disbursements, meeting certain criteria.  One of these criteria is that the benefit payments could have been suspendible (w/o regard to 401(a)(9)) with regards to 203(a)(3)(B) of ERISA (Suspension of Benefits rules).

Does this mean that I can't offset future accruals by any distributions made for a month in which the participant worked less than 40 hours (because those payments can't be suspended - did not have 203(a)(3)(B) service for that distribution period)?  If you are allowed to offset all actual distributions, then what is this section of the regulation referring to.  Also, I assume that if the plan doesn't typically suspend payments (or at least doesn't suspend them as stringently as they could), that this isn't an issue.  What matters is whether the regulations would allow them to suspend, not whether they actually suspended? The obvious scenario being when someone is impacted by 401(a)(9), but this plan does have SOB rules in place, but they only do it when the participant works at a rate that is greater than the 203(a)(3)(B) service definition. 

It may not seem to be a common issue anymore, since in-service RMDs are only required for 5% owners since the SBJPA changes, and those participants are likely to be working more than 40 hours a month.  However, I'm working on a remediation project which includes many pre-SBJPA RMDs, as well participants that commenced in-service prior to SBJPA, and the in-service payments were elected to continue.  

With In-Service retirements after PPA, this issue may have gained additional scrutiny, but I haven't been able to locate any more recent legal guidance.

One last question:  Another set of plans I'll be addressing allows for benefits to grow even after they've transferred out of the prior plan.  This occurs even if the transfer is outside the Controlled-Group.  When someone transfers from CG(1) to CG(2), they are treated like a termination in CG(1) plan (this is not in question by the employer's legal counsel - and I agree with this).  So for RMD purposes, they must commence benefits under CG(1) plan even though they are still actively working for the employer. The CG(1) benefit can, and often does, increase after "termination".  So, in a nut shell, it behaves like an in-service RMD under CG(1)'s plan.  Referring to the question above regarding offsets for benefit payments, it appears that all benefit distributions are not suspendible under CG(1) plan, and thus, there will need to be an increase in the CG(1) plan benefit that is being paid?  

Sorry for the long set of questions, but I haven't been able to locate a single citation (legally binding, or otherwise) that addresses this specific issue.  All the examples in regulations/industry publications seem to either gloss over the "suspendible" issue with the distributions, or I'm off-base with my interpretation.