401(a)(26)

[Cloudy]

Question 1: One person CB plan. CB pay credit formula is a percent of compensation using only compensation greater than $150,000. If compensation is less than $150,000 is there a 401(a)(26) failure?

Question 2: Company has three employees, all family / HCE's. All employees have entered the plan, but only one of the participant is receiving an annual cash balance benefit, the others are in a $0 contribution credit group. Is there any way this plan can pass 401(a)(26)?

[C. B. Zeller]

1. Will probably pass on accrued-to-date.

2. I don't see how it can pass with only 33% of the employees receiving a benefit.

[Cloudy]

For accrued-to-date, my understanding is that if someone is not accruing/benefiting in the current year then accrued-to-date does not change that fact.

Thanks.

[C. B. Zeller]

If you're worried about it, maybe write the benefit formula as the greater of 0.5% per year, or the benefit provided by the cash balance account. That should make sure that you're benefiting for purposes of 410(b)/401(a)(26), even if you don't actually accrue a benefit in the current year.