We administer a DB plan for a small husband and wife company.

The plan was active for 5 years then they froze the plan effective January 1, 2007 (hard freeze). Since then, they have hired two full time employees who would have entered the plan July 1, 2009.

They wish to now unfreeze the plan effective for 2010 and prospectively credit the same 5% of FAC per year of participation as they had in the past. We should be able to accomplish this with a fresh start. Under this scenario, the owners will not receive accruals for the three years the plan was frozen.

They would like to exclude the two NHCE's from receiving benefits under the DB and would instead cover them under a profit sharing plan and provide contributions of 15% every year for the NHCE's.

They would pass the general test.

Does anyone see problems with not covering NHCE's in the DB plan?

No, as long as there are similar provisions in both plans so there are no BRF problems. For example, the NRA should be the same, the vesting schedules, loans, etc.

I assume the owners would not be in the DC plan at all and so you don't have a 404(a)(7) issue. Be careful though, two new employees and now you might, so watch how you word eligibility for both plans.

And as long as you pass 401(a)(26) in the DB plan. With just 4 employees, you're okay so far by benefitting 2.