Comments With Respect to Prop. Treas. Reg. §§ 1.401(A)(4)-8(B)(1) and 9(B)(2)(V)
Governing So-Called “New Comparability Plans”
March 23, 2001

Contents | Introduction | Summary | I | II | III | IV | V

Analysis

V. Simplification of the “Primarily Defined Benefit” Test

We recommend that a plan be permitted to demonstrate that a DB/DC plan⁴ is primarily defined benefit in character on the basis of a testing methodology that is less complex than the methodology proposed in Prop. Treas. Reg. § 1.401(a)(4) - 9(b)(2)(v)(B). Under the proposed regulation, "A DB/DC plan is primarily defined benefit in character if, for more than 50% of the NHCEs benefitting under the plan, the normal accrual rate for the NHCE attributable to benefits provided under defined benefit plans that are part of the DB/DC plan exceeds the equivalent accrual rate for the NHCE attributable to contributions under defined contribution plans that are part of the DB/DC plan."

This will require an additional layer of complex testing. We suggest that this could be improved, from a policy perspective, with less of a burden on plan sponsors, with a simple head count/minimum normal accrual rate requirement. For example, the following language could be added to the provision quoted above: "…or if more than 50% of the NHCEs benefitting under the DB/DC plan receive a normal accrual rate under the DB part of the DB/DC plan that is meaningful; for purposes of this paragraph, an accrued benefit shall be treated as meaningful if the normal accrual rate under the DB part of the DB/DC plan is equal to at least 1% of compensation." Furthermore, employee deferrals under an I.R.C. § 401(k) plan and employee and employer contributions under an I.R.C. § 401(m) plan should be disregarded for this purpose. Additionally, the regulations should clarify that this requirement does not apply to DB and DC plans that are aggregated solely for the purpose of satisfying the I.R.C. § 410(b) minimum coverage requirements.

Contents | Introduction | Summary | I | II | III | IV | V