Combo plan - top heavy benefit provided by DB

[Jakyasar]

Hypothetical question:

Combo plan DC/DB, top heavy

Only DB provides top heavy

What is the percentage?

[Jakyasar]

Follow up - participant is in both plans

[C. B. Zeller]

The top heavy minimum benefit in a DB plan is a 2% of the participant's highest 5-year average comp multiplied by years of service, with a maximum of 20%. Years in which the plan was not top heavy may be excluded.

If you're asking what is the pay credit, I suppose the plan could define it as whatever amount will make the accrued benefit equal to the top heavy minimum benefit. You would need to see if your plan document is written that way however. I don't think I've ever seen that in a plan document. Usually it will just say that the accrued benefit is the greater of the actuarial equivalent of the hypothetical account balance, or the top heavy minimum.

If the participant's accrued benefit is the top heavy minimum (and not the hypothetical account balance), then 417(e) applies.

[Jakyasar]

Hi Corey

Thank you for all the extra info but the only thing I was asking is in the hypothetical scenario where in a combo plan, if and only if the DB plan is providing the top heavy, what the percentage would be. Why am I thinking 3% even though it seems to be 2%. Long day, not thinking straight.

If this was a DC only then it is 5% where the participant benefits in both plans.

[C. B. Zeller]

Well you're not asking the question clearly - you want to know what WHAT percentage would be? The pay credit? The DC contribution? The increase in the DB accrual?

I think what you were asking is what would the pay credit be. And my answer was that the top heavy minimum, when provided in a DB plan (even in a cash balance plan) is NOT a pay credit. It is a life annuity benefit.

[Jakyasar]

I am not referring to any CB plan here but thanks anyway.

[C. B. Zeller]

My mistake then - I misread the post as a CB plan.

Anyway, DB top heavy minimum is defined in 416(c)(1)(B) if you want to check the 2% number.

It should also be spelled out in your plan document.