§ 415(b)(3)'s Confluence with § 416 Accruals

Please indicate if the years of service of which defined benefit minimum serve as a function must also occur as years of participation.

URL https://www.ecfr.gov/current/title-26/section-1.416-1 

Citation 26 CFR § 1.416-1

M-2 Q. What is the defined benefit minimum?

A. (a) The defined benefit minimum requires that the accrued benefit at any point in time must equal at least the product of (i) an employee's average annual compensation for the period of consecutive years (not exceeding five) when the employee had the highest aggregate compensation from the employer and (ii) the lesser of 2% per year of service with the employer or 20%.

(b) For purposes of the defined benefit minimum, years of service with the employer are generally determined under the rules of section 411(a) (4), (5) and (6). However, a plan may disregard any year of service if the plan was not top-heavy for any plan year ending during such year of service, or if the year of service was completed in a plan year beginning before January 1, 1984.

(c) In determining the average annual compensation for a period of consecutive years during which the employee had the largest aggregate compensation, years for which the employee did not earn a year of service under the rules of section 411(a) (4), (5), and (6) are to be disregarded. Thus, if an employee has received compensation from the employer during years one two, and three, and for each of these years the employee earned a year of service, then the employee's average annual compensation is determined by dividing the employee's aggregate compensation for these three years by three. If the employee fails to earn a year of service in the next year, but does earn a year of service in the fifth year, the employee's average annual compensation is calculated by dividing the employee's aggregate compensation for years one, two, three, and five by four. The compensation required to be taken into account is the compensation described in Question and Answer T-21. In addition, compensation received for years ending in plan years beginning before January 1, 1984, and compensation received for years beginning after the close of the last plan year in which the plan is top-heavy may be disregarded.

M-2 seems to allow the reckoning of average compensation to remain vague, though usually § 415 amounts apply for this situation. If so, please indicate if the amendment of 415 as described affected 416 defined benefit minimums.

26 USC 415: Limitations on benefits and contribution under qualified plans

(3) Average compensation for high 3 years
For purposes of paragraph (1), a participant's high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant both was an active participant in the plan and had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401(c)(1), the preceding sentence shall be applied by substituting for "compensation from the employer" the following: "the participant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)".

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section415&num=0&edition=prelim

Subsec. (b)(3). Pub. L. 109–280, §832(a), struck out "both was an active participant in the plan and" before "had the greatest".

 

The plan document will indicate whether the top heavy minimum is computed based on years of service or participation.

To irenically, placidly, and pleasantly embellish the inquiry, please locate/identify the official guidance which indicates the drafting of the instrument, the plan stipulations, may restrict the service reckoned for this situation to only service provided while in participant mode. The guidance consulted lacks mention of years of participation as an acceptable descriptor/determiner with which to constrain the tallied service. If guidance further to the Treasury Regulations has broached such a situation, please describe this official guidance and where to locate such guidance, the provenance of said guidance. 

Might I propose that you articulate your query forthwith, and rest assured that an appropriate interlocutor shall furnish you with a cogent and satisfactory response—ideally accompanied by a brief exposition of the real-world conundrum you seek to resolve.

The reply seems aptly descriptive, requesting official guidance on where to locate official guidance condoning restricting the logged service to service provided while in participant mode.