I'm looking at a cross-tested plan with three rate groups: (1) staff (2) officers (3) officers negatively impacted by freezing of defined benefit plan as determined by the Board of Directors. Based on testing by TPA these groups pass. Any thoughts on whether wording of group (3) will cause me any problems with the IRS?

On what basis did the board of directors determine who was negatively impacted?

Yeah, a thought or three. Wording of 3 (1)leaves excessive discretion to the Plan Administrator, (2) Calls into question whether benefits are "definitely determinable" , and (3) abuses the rules that the IRS has thus far not yet challenged.

I think such a design would be unethical. You might get away with it. That does not make it right.

Andy,

Wrt WDIK's question, if there was some objective definition of who was negatively impacted by the freeze, would that alleviate your concerns?

Sure, provided that it was clearly specified in the plan document in a manner that precludes employer discretion (now I'm sounding like the IRS),

Since there has been a lot of discussion on the list regarding naming either a group of one by name, and the consensus seems to be that this is acceptable for allocation purposes, would it be better to just list persons included in the group? And if the employer has determined who these people are, isn't this "employer discretion"? And if so, doesn't the employer, not the plan administrator, determine who is in any group, by defining the groups?

I think you will find in previous threads that this point has a number of opponents as well as proponents.




Yes, but I think the concern centers around whether group designation has some justifiable basis or is arbitrary or difficult to define. What does it mean to be negatively impacted by freezing the defined benefit plan? Is it possible to interpret this to mean everyone, since they no longer are receiving accruals? Did the board make the choice based on actuarial methodology, personal relationships or some other method?

So once again we are back, arguably, to whether or not groups have to be "reasonable" or have some business purpose. If there is an actuarial basis, then how would the language be clarified? "All officers who were receiving accruals of x% or greater under the defined benefit plan"? What if the group were determined by a date certain, such as "all officers hired prior to x date."

Reasonable or some business purpose are not concerns, rather the issue relates to whether the benefits are definitely determinable (as pointed out by prior posts). The 2 are completely different topics.

I think that 95% of us (or more) do not think that the groups need to be reasonable. But they need to be defined.

Ok, thanks for the input on this issue. I will go back to the drawing board and figure out a way to make the groups definitely determinable and include that language in the plan.

You may also want to revise the definition for group 2 to ensure it does not include anyone in group 3. The way I read it currently, all of the members of group 3 would be included in group 2.