DB(k)

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DB(k), or Defined Benefit 401(k) Plan Combo, under Internal Revenue Code Section 414(x)

Beginning in 2010, an employer may adopt what is called an "eligible combined plan." This consists of a defined benefit plan plus a 401(k) plan held in a single trust, using only one plan document, only one summary plan description, only one Form 5500, and only one audit (if required).

The 2006 Pension Protection Act allows for businesses with 500 employees or fewer to offer new hybrid defined benefit/defined contribution plans. These new DB(k) plans provide a modest employer-paid guaranteed lifetime monthly retirement benefit that can be supplemented by voluntary contributions from employees. In an era when government and many businesses have shifted the burden of saving for retirement from employers to employees, these DB(k) plans combine the security workers enjoy through traditional Defined Benefit pensions, with the individual control over investments, simple approach, and the tax deferral that made defined contribution plans, like the 401(k), so popular.

The DB(k) plan would be deemed NOT top-heavy, nor subject to any non-discrimination testing, as long as the plan meets specific “safe harbor” formulas for both the Defined Benefit (DB) and the 401(k) elements of the qualified plan.

Key elements of the DB(k) plan:

A defined benefit equal to 1% of final average pay for each year of the employee’s service, up to 20 years.
Automatic enrollment for the 401(k) component. Unless an employee specifically opts out, or changes the contribution level, then 4% of their pay is automatically contributed into 401(k) plan.
An employer match of at least 50% of employee 401(k) contributions, with a maximum required match of 2% of pay.
Employer non-elective contributions are allowed (Profit Sharing).

All employer derived benefits under the Defined Benefit component and the non-elective contribution under the Defined Contribution component would have to be fully vested within three years. Uniform provision of contributions and benefits is required. Permitted disparity may not be used.

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