We were presented with a plan design that included the combination of a Profit Sharing plan and a Cash Balance plan. The Cash Balance Plan provided a large contribution to two owners and a flat $500 contribution to the other employees. The profit sharing contribution was 7.5% and the plans were aggregated for testing (we were not provided with the testing, this is an assumption on our part).

I have only seen the "meaningful benefit" discussed in terms of a regular DB plan with a .5% accrual rate. Are there special rules for Cash Balance Plans? Has anyone seen anything from the IRS or otherwise that would imply that a $500 annual contribution would constitute a "meaningful benefit"?

My thought is that the $500 contribution would need to be converted to an accrual rate. If the accrual rate is .5% or better then it would be ok. Does everyone covered in the DB plan have to have the meaningful benefit, or just 40%?

The "meaningful benefit discussions" were the result of the type of formula you are looking at. It is really a facts & circumstances issue. If everyone is paid < $25,000, then I think (personal opinion) that $500 can be defended as "meaningful" since it w/b > 2% of comp.

The .5% db accrual was an IRS UNOFFICIAL safe harbor. There is nothing in the Regulations to defend their position. "Meaningful" is never defined.

The IRS' position for a CB plan is to convert it to an annuity and see if that is more than 0.5%. While I agree that is unofficial and under facts and circumstances, I would be very hesitant to design a plan providing less benefits to more than 60% of the nonexcludables.

Elem, only 40% of the nonexcludables needed to have meaningful benefits since it is a 401(a)(26) issue.