I know that you can not tie a defined benefit accrual to participation in a 401(k) plan (1.401-1(e)(6)), but I couldn't find anything specifically precluding it with a 403(b) Plan.

In other words, can I have a defined benefit formula that is partially tied to participation in a 403(b) Plan? ie: 1% of compensation per year of service, plus .5% per year of service if contributing to the 403(b) plan

Yes, the client may do it (subject to the plan's complying with 401(a)(4)), but why?

I strongly recommend explaining to the client all of the nondiscrimination testing issues (and associated fees) that go with that type of plan design. It would also be a good idea to discuss the plan design with the actuary.

I've seen this plan design a few times. In essence, it's communicated as a match where the additional benefit is provided in the pension plan, but it's subject to 401(a)(4) not 401(m) testing. It only makes sense for large employers -- otherwise the actuarial and administrative issues it introduces offset any advantages.

That is exactly what they were doing - using a cash balance plan as a vehicle to provide a match from a 403(b) plan.

It just seems strange that 401(k)s and 403(b)s are so similar, yet this tactic is expressly forbidden in 401(k)s and permitted in 403(b)s. It just doesn't make any sense.

We are talking about the Internal Revenue Code, aren't we?