Can the Reallocation of Transferred DB Surplus in DCP be over and above the 25% Deduction Limitation?

Question: In a Defined Contribution Plan, can the transferred Defined Benefit surplus assets being released for 2020 Plan Year (received into it on account of prior DB termination), be allocated in addition to the employer's contribution equal to the 25% of eligible pay or must the 25% deduction limitation be reduced by the amount of DB surplus being allocated?

Example:

DB Surplus Suspense Account must release at least $35,000 for 2020

Total Eligible Payroll $500,000 therefore 25% Deduction Limitation is $125,000. There are multiple participants. It is understood the maximum any one participant may receive in annual additions is $57,000 (+ catch-up if any).

Can the Employer contribute and deduct the full $125,000? This would mean a total of $160,000 ($35,000 DB surplus released plus $125,000 employer contribution) will be allocated for 2020. OR, must the employer's contribution and deduction be reduced to $90,000 (the $125,000 deduction limit reduced by the $35,000 DB surplus to be released and allocated this year)?

Thank you.

The $35K released from the suspense account is not being deducted, it's simply being allocated so I don't see a problem with allocating $160,000 as long as it follows plan and IRS rules and complies with 415.

If you had a client who was reallocating $35K of forfeitures on top their 25% of pay employer contribution, would you have a problem with that? I wouldn't.

Forfeitures do not offset 404 deduction limit - I am hoping same logic applies with respect to the DB Surplus release amount.

You're good to allocate up to the 415 limits.   

Also must watch how and if it will affect the testing issues, if any. As Sherpa stated, you need to watch for 415 limits and also make sure that at least 1/7th of the db excess is allocated with 95% of the active ex-db participants receive an allocation.

2 hours ago, Jakyasar said:

Also must watch how and if it will affect the testing issues, if any. As Sherpa stated, you need to watch for 415 limits and also make sure that at least 1/7th of the db excess is allocated with 95% of the active ex-db participants receive an allocation.

Everyone who was in the terminated DB and continues to be a participant will share in its allocation

4 hours ago, shERPA said:

You're good to allocate up to the 415 limits.   

Thank you shERPA

Thank you everyone!  Very much appreciated.