Reduction in flat benefit formula

[Guest AlCal]

If benefit at NRA is a flat % of compensation(i.e. 100%) are we oblige to reduce it by at least 1/25 for each year of service less than 25?

Thanks

[Lorraine Dorsa]

If you are referring to the safe harbor requirements of IRC 1.401(a)(4) with regard to the amounts of benefits, there is a safe harbor for flat benefit formulas which requires the 25 year reduction you mention.

However, a qualified DB plan can use any formula which will satisfy the non-discrimination rules. You can use the flat benefit formula without reduction, but you will have to use either the non-design based safe harbor which requires limited testing or the general test which requires full testing.

[david rigby]

Also, if you are trying to create a benefit of 100% of comp, refer to IRC 415(B)(3) for the defintion of comp, and

refer to IRC 414(B)(5)(B) for the "phase-in", that is, the 100% applies where the employee has at least 10 years of service.

[Guest AlCal]

Thanks for the input. More specifically; for a one person Standardized Prototype DB (no other participants)should I ever worry about this benefit limitation?

[Gary]

In your case it appears that the 25 year issue is not relevant. The only apparent and certain concern is 415.