401(b)(3) - Can it be used to reduce the pay credit for a SoleProp?

[actuary_pension]

Logistics: 2025 Plan Year, Cash Balance Plan, Sole Prop, Current Benefit Formula: 100% of Compensation

Can the benefit formula be amended to 50% of Compensation (i.e. decrease the benefit without violating 411) for 2025 plan year only under 401(b)(3)? I assume not but wanted to see if community has any thoughts.

I understand the accrual rules are generally not a consideration when increasing the benefits under 401(b((3) but does the same apply for 411?

Thank you. 

 

[Effen]

No.  If the participant met the requirements to accrue that year's benefit, then it cannot be taken away. 

What are the requirements for an accrual?  1 hour?  500 hours?  1000 hours?  elapsed time?   Might it be possible that the participant did not meet whatever requirements are in place for earning the accrual?  

What are you actually trying to accomplish?  Are you trying to reduce the 2025 MRC?  

[actuary_pension]

The accrual requirement is 1000 hours which is already met. MRC for the 2025 plan year is close to ~$300k and the plan sponsor would like to reduce the MRC to ~$150k

[Effen]

It's a little late now to have that conversation.  I think they are stuck with 2025 MRC.  May have time to reduce 2026 if they haven't already worked another 1000 hours.  Can freeze it prospectively so post 8/1/26 comp doesn't count.    If they can't make all of the 2025 MRC, and you can reduce the 2026 MRC, maybe they can spread cash payments out over over a few years and minimize excise taxes.