[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)(26)-5]

[Page 259-260]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)(26)-5  Employees who benefit under a plan.

    (a) Employees benefiting under a plan--(1) In general. Except as 
provided in paragraph (a)(2) of this section, an employee is treated as 
benefiting under a plan for a plan year if and only if, for that plan 
year, the employee would be treated as benefiting under the provisions 
of Sec. 1.410(b)-3(a), without regard to Sec. 1.410(b)-3(a)(iv).
    (2) Sequential or concurrent benefit offset arrangements--(i) In 
general. An employee is treated as accruing a benefit under a plan that 
includes an offset or reduction of benefits that satisfies either 
paragraph (a)(2)(ii) or (a)(2)(iii) of this section if either the 
employee accrues a benefit under the plan for the year, or the employee 
would have accrued a benefit if the offset or reduction portion of the 
benefit formula were disregarded. In addition, an employee is treated as 
accruing a meaningful benefit for purposes of prior benefit structure 
testing under Sec. 1.401(a)(26)-3 if the employee would have accrued a 
meaningful benefit if the offset or reduction portion of the benefit 
formula were disregarded.
    (ii) Offset by sequential or grandfathered benefits. An offset or 
reduction of benefits under a defined benefit plan satisfies this 
paragraph (a)(2) if the benefit formula provides that an employee will 
not accrue additional benefits under the current portion of the benefit 
formula until the employee has accrued, under such portion, a benefit in 
excess of such employee's benefit under one or more formulas in effect 
for prior years that are based wholly on prior years of service. The 
prior benefit may have accrued under the same or a separate plan, may be 
provided under the same or a separate plan and may relate to service 
with the same or previous employers. Benefits will not fail to be 
treated as based wholly on prior years if they are based, directly or 
indirectly, on compensation earned after such prior years (including 
compensation earned in the current year), if they are adjusted to 
reflect increases in the section 415 limitations, or if they are 
increased to provide an ad hoc cost of living adjustment designed to 
adjust, in whole or in part, for inflation. Furthermore, benefits do not 
fail to be treated as based wholly on prior years merely because the 
benefits (e.g., early retirement benefits) are subject to an age or 
years-of-service condition and, in applying the condition or conditions, 
the current and prior years are taken into account.
    (iii) Concurrent benefit offset arrangements--(A) General rule. An 
offset or reduction of benefits under a defined benefit plan satisfies 
the requirements of this paragraph (a)(2)(iii) if the benefit formula 
provides a benefit that is offset or reduced by contributions or 
benefits under another plan that is maintained by the same employer and 
the following additional requirements are met:
    (1) The contributions or benefits under a plan that are used to 
offset or reduce the benefits under the positive portion of the fomu1a 
being tested accrued under such other plan;
    (2) The employees who benefit under the formula being tested also 
benefit

[[Page 260]]

under the other plan on a reasonable and uniform basis; and
    (3) The contributions or benefits under the plan that are used to 
offset or reduce the benefits under the formula being tested are not 
used to offset or reduce that employee's benefits under any other plan 
or any other formula.
    (B) Special rules for certain section 414(n) employer-recipients. 
The same employer requirement in the concurrent benefit offset rule in 
paragraph (a)(2)(iii)(A) of this section is waived for certain section 
414(n) employer-recipients. Under this exception, an employer-recipient 
(within the meaning of sections 414 (n) and (o)) may treat contributions 
or benefits under a plan maintained by a leasing organization as 
contributions or benefits accrued under the recipient organization plan 
provided the following requirements are met: the employer-recipient 
maintains a plan covering leased employees (which employees are treated 
as employees of the employer-recipient within the meaning of sections 
414(n)(2) and 414(o)(2)); the leased employees are also covered under a 
plan maintained by the leasing organization; and contributions or 
benefits under the plan maintained by the employer-recipient are offset 
or reduced by the contributions or benefits under the leasing 
organization plan that are attributable to service with the recipient 
organization. Also, for purposes of the benefiting condition requirement 
in paragraph (a)(2)(iii)(A)(2) of this section, the employees of the 
employer-recipient who are not leased from the leasing organization are 
not required to benefit under the plan of the leasing organization.
    (b) Former employees benefiting under a plan. A former employee is 
treated as benefiting for a plan year if and only if the former employee 
would be treated as benetiting under the rules in Sec. 1.410(b)-3(b).

[T.D. 8375, 56 FR 63416, Dec. 4, 1991]