26. Current benefit formulas – plans not providing for permitted disparity and using…

Statement of Requirement: IRC 401(a)(4); Treas. Reg. 1.401(a)(4)-3(b)(4)

Document Provision: _____

(Note to reviewer: This LRM #26 contains language that satisfies the requirements of the safe harbor contained in Treas. Reg. 1.401(a)(4)-3(b)(4) (safe harbor for plans using the fractional accrual rule). For a sample current benefit formula for unit credit plans that do not use the fractional accrual rule, see Provision #1 of LRM #31.)

Sample Adoption Agreement Language:

Unit Credit Plans:

Each participant will receive a benefit payable at normal retirement age equal to _____ % of average annual compensation for each year of credited service up to a maximum of _____ (no less than 25) years of credited service. This benefit is accrued under the fractional accrual rule in section _____ of the plan (other than plans that satisfy IRC 411(b)(1)(F)).

(Note to reviewer: The last blank above should be filled in with the plan section that corresponds to the fractional accrual rule in LRM #31.)

(Note to reviewer: The following language satisfies the requirements of the safe harbor for plans using the fractional accrual rule contained in Treas. Reg. 1.401(a)(4)3(b)(4)(i)(C)(1) for a plan that provides for a step in its benefit formula (i.e., that provides a rate of benefit that changes after a certain specified number of years of credited service).)

Sample Adoption Agreement Language:

Each participant shall receive a benefit payable at normal retirement age equal to__ % of average annual compensation (R1) per year for the first _____ years of credited service (y) and _____ % of average annual compensation (R2) per year for the next _____ years of credited service (such that the total years of credited service taken into account under R1 and R2 is not less than 33, and such that R1 is not one-third larger than R2 nor is R2 one-third larger than R1).).

30 | Defined Benefit Plan LRM Package 06/2026

This benefit is accrued under the fractional method in section _____ of the plan (other than plans that satisfy IRC 411(b)(1)(F)).

(Note to reviewer: The last blank above should be filled in with the plan section that corresponds to the fractional accrual rule in LRM #31.)

(Note to reviewer: A Standardized Plan must structure the formula to meet the safeharbor rules in Treas. Regs. 1.401(a)(4)-3(b)(4)(i)(A) and 1.401(a)(4)-3(b)(4)(i)(B), and either Treas. Reg. 1.401(a)(4)-3(b)(4)(i)(C)(1) or Treas. Reg. 1.401(a)(4)-3(b)(4)(i)(C)(2).)

Flat Beneft Plans:

Each participant will receive a benefit payable at normal retirement age equal to ____ % of average annual compensation (reduced pro rata for the participant's years of credited service less than 25). This benefit is accrued under the fractional method in section _____ of the plan.

(Note to reviewer: The last blank above should be filled in with the plan section that corresponds to the fractional accrual rule in LRM #31.)