Reducing Owners Contribution to Cash Balance Plan

[metsfan026]

Client has hit some hard times, but wants to continue to benefit the employees (at least for now).  They reduced the contribution to the owners in 2023, but now need to reduce their contributions again.

Generally I know you can't change the benefit annually.  However, if the employees stay the same and it's just the owners who are taking a reduction (possibly as low as $0), would that be viewed as acceptable?

I don't see an issue, since it's only the HCE who are being negatively impacted.  I just wanted to confirm that I wasn't overlooking anything.

[david rigby]

Are you saying you want to freeze the benefit for the HCE(s) only?  That sounds non-discriminatory to me.  Don't forget to consider how/what would happen at some future date when/if the HCE is unfrozen.

[CuseFan]

You need to comply with anti-cutback rules and 204(h) but otherwise should be OK. I agree you do not want frequent amendments but this seems to be in response to a change in business conditions. However, I would not then jump back up next year - I'd make them ride this reduction for a few years. The last thing you want is a series of amendments bouncing owner benefits up and down.

[metsfan026]

13 minutes ago, CuseFan said:

You need to comply with anti-cutback rules and 204(h) but otherwise should be OK. I agree you do not want frequent amendments but this seems to be in response to a change in business conditions. However, I would not then jump back up next year - I'd make them ride this reduction for a few years. The last thing you want is a series of amendments bouncing owner benefits up and down.

Agreed 100%.  Would there be an issue to do this retroactively to 2024?  Just curious, because I know they are struggling now to come up with the money, so freeze their contribution for '24, '25 & probably '26 before revisiting starting contributions back up?

[CuseFan]

3 minutes ago, metsfan026 said:

Would there be an issue to do this retroactively to 2024?

Yes. You need to comply with anti-cutback rules and 204(h). Depending on plan terms, 2025 may not be possible either.

And they have 10 days to avoid a funding deficiency if 2024 MRC is not funded.

 

[Lou S.]

2 hours ago, metsfan026 said:

Agreed 100%.  Would there be an issue to do this retroactively to 2024?  Just curious, because I know they are struggling now to come up with the money, so freeze their contribution for '24, '25 & probably '26 before revisiting starting contributions back up?

Unless they have a time machine, too late for 2024.

For 2025 if they haven't met the accrual condition for 2025, you can assuming you do any amendments and notices timely but given that we're already in September unless they haven't been paying themselves any salary you might have a tough time justifying no accrual.

[truphao]

it depends (as usual).  If the client keeps good records of hours and the owners did not cross the 1,000 hours I think it is possible (assuming this is how the plan is drafted). Had exaclty same situation last year and we froze the benefit accruals for Owners in late August.  I did spent a great amount of time educating the client about the keeping the proper records and the due diligence.  I was comfortable implementing at the end of the day given the quality of records and the corresponding decrease in W-2s.

[Bill Presson]

2 hours ago, truphao said:

it depends (as usual).  If the client keeps good records of hours and the owners did not cross the 1,000 hours I think it is possible (assuming this is how the plan is drafted). Had exaclty same situation last year and we froze the benefit accruals for Owners in late August.  I did spent a great amount of time educating the client about the keeping the proper records and the due diligence.  I was comfortable implementing at the end of the day given the quality of records and the corresponding decrease in W-2s.

Always need to be careful of looking at equivalencies in the document for salaried people if actual hours aren’t tracked. Just a word of warning. 
 

I would be very nervous about being told that a typical owner of a business hadn’t worked 1,000 hours in that business by September. 

[Calavera]

See if you can change any assumptions to at least reduce the 2024 minimum required contribution.