Calendar year DB plan freezes 5/31/2009.

Benefits accrue on elapsed time.

The annual method is being used for 410(b) testing, i.e. the measurement period is calendar 2009.

1. What is testing service, 5/12 or 1?

2. What are the options for testing comp other than an average of 3 or more years, i.e. is calendar 2009 ok despite the freeze?

Some very different results will occur depending on the choice. I don't see anything in the regs that helps with these issues.

I suppose this could be viewed as a change to a 0% benefit formua and under that approach the accrual divided by the full year comp could be used, and since benefit service is capped at 5/9 that could and perhaps should be the testing service.

Opinions?



(5/9 changed to 5/12)

Unless the plan is actually using fractional years (remember the old tables - so many hours or months gave a fractional year?) then it is all or none, and since the plan uses elapsed time (which means no hours, only EOY) for accrual, anyone still there at EOY has accrued a year. But you are feezing before eoy.

So no once has met the accrual requirements, so my vote is no acrrual.

Sorry, my 5/9 should have been 5/12. I will go back and edit it. Benefits accrue on days. Same question.

If you REALLY have a plan that accrues 1/365th of a benefit per day worked, the person who designed the plan needs to have a good talking to! I guess that would count as an elapsed time method.

Now, the document must also define how many days/months/weeks are needed to accrue a full benefit. Your ratio would then be (time before freeze) / (time needed for full accrual). In your case it could easily be 5/9 if only 9 months are necessary to accrue a full benefit.

There are many plan designs that don't accrue on hours. I can think of several versions that would have a 5/12 accrual
if the plan were frozen May 31.

I am leaning towards agreeing that the testing service should be 5/12, not 1. But I'm not sure because years benefitting for 410(b) purposes, which would be 1, is an alternative.

p.s. 1.401(a)(4)-3(d)(1)(iv)(B)(2) says

"(2) Current year testing service.
In the case of a measurement period that is the current plan year, testing service for the plan year equals one (1)."

(I thought that was there but could not find it.)

So the correct answer using the annual method equals the increase in the accrued benefit divided by testing comp divided by (1) not (5/12).

Thanks to Rick G.