Is there anyway to keep a DB plan inplace for exsisting benefits, and

[Guest trustme]

We currently have a DB and 401(k), the 401 has no match and they would like to start one. Can they stop adding to the DB, but still hold the accrued benefits in place? If so, how? If not, I'm looking for guidance on what options we have to help the younger employees have more tangable benefits.

[Guest]

I'm a little bothered by your "handle", but I'll respond anyway.

The DB plan accruals can be frozen, although there is no guarantee that it will cause the required contribution to be $0. Contributions in DB plans are based on the amount of money in the trust and the value of the benefits which the paricipants have earned. These earned benefits can not be reduced. If the benefit liability exceeds the assets, than most likely contributions will be required at some point in the future unless the shortfall can be made up by trust asset gains.

Your question is the primary reason for the rise in cash balance plans. (Don't let the media fool you!) Your shift to the 401(k) may help the younger employees, but it will do so at the expense of the older, longer service employees. Cash Balance plans generally accomplish the same thing, but in many cases use the overfunding inside the existing db plan to do it.

There's no such thing as a free lunch!

There is no legal reason why you can't have both (db & 401(k)) although depending on your payroll and the amount of the annual contributions, deductions could become an issue.

I don't know if I helped. You should talk to your actuary and or recordkeeper regarding your specific situation. Of course if they're no help, I'm sure you could find one that would.

[david rigby]

Don't forget about top-heavy rules.

There may be other ways to help you accomplish your goal of providing more meaningful benefits to younger employees, but the addition of a 401(k) is probably the simplest. Your actuary should be of help in reviewing the alternative plan designs.

[Guest Matt Tuttle]

Do something easier. Start a leveraged split dollar arragement which is 100% deductible to the company and 75-90% deductible to the employee. It can cover anyone who you want and has no effect on any qualified plans in place. Retirement income comes out tax free also.