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Using Years of Services for determining allocations.


Guest SPollock
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Guest SPollock

Can I use years of services as the criteria for determining allocation percentages. For example: Group #1 - employees w/ greater than 15 years of services, Group #2 - employees with 10 to but less than 15 years of services, Group #3 - employees with 2 to but less than 10 years of services and group #4 w/ less than 3 years of services. Obviously this would need to pass discrimination testing, but is it possible? Could I add groups at some future point, such as a new group for those with over 20 years of services (while maintaining the other 4 groups)? What other criteria can I use besides, age and service? (The HCEs would both fall into Group #1 at this point.) Thank you!

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Yes, service based designs such as you've stated are fairly common. This approach is what the IRS seems to be pointing to as acceptable go-forward.

Other common groupings are done by job classification. Also "Senior management", "Executive management", and the like are common. You can also name people either through the plan document or a separate resolution. These types of groupings, however, are what the IRS seems to be attacking. If you can do it on service alone, that might be the best hope of continuing it after the current scrutiny is resolved.

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Guest SPollock

Thank you ANDYH. I am a little "gun shy" of the other options until we hear more from the IRS, but many of the plans I am working with could also work under a service criteria. Thanks again!

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