How does an age nuetral comparability plan work?

[Guest Geo Kovka]

Currently you can set up a comparability profit sharing plan which relates to class, age and compensation. There is also an age nuetral comparability plan which relates to class and compensation. Does anyone have information on how this works (perhaps a sample spreadsheet comparing both types)and who offers the document?

[imchipbrown]

Allow me to show my ignorance to the world. The Plan you describe goes something like this: There are 2 or more classes of employees, which are non-discriminatorily described. Maybe shareholders as class 1, everyone else as class 2.

Each year, employer will make a contribution for class 1, allocated according to some allocation formula (salary ratio, perhaps) and a contribution for class 2 to be allocated in some manner.

Obviously, this sounds too good to be true, but through some math that I vaguely understand (see, ignorance!) it can be proved the plan is non-discriminatory, usually on a benefits(as opposed to contibutions) basis.

Perhaps some of the geniuses on this board can step you through the math involved.

As for documents, I think I heard (in a dream, perhaps) that the Volume Submitter program was openned up to these plans. I know Datair (www.datair.com) has a document to accomodate these types of plans. In addition, you'll want some software to be able to determine the amount of contribution "Class 2" must get in order for "Class 1" to be able to get what they want.

How'd I do guys?

[Guest ERead]

Not too bad.....

More specifically though, the cross tested plans use an average benefits test to pass the discrimination requirements, and in that test, since it is based on actuarial tables, you cannot get around the age problem.

However - the allocation of contributions can be age neutral. It's all in the way you define your groups. Please be careful and do a lot of pretesting, to be sure that your not going to run into a situation where you'll have to amend the formula year after year (not a good thing).

I know that Corbel has stopped (until further notice) providing the language to include in the volume submitters, individually designed Profit Sharing Plans, however they do have language for Money Purchase Plans with cross testing allocations.

Good luck.

[richard]

Why has Corbel decided to stop providing language for volume submitted profit sharing plans? Is there something we out here should know? Like, is the IRS changing their position on these plans (they issued an announcement of sorts several months ago expressly permitting this in documents)?

Age does enter into the discrimination testing, the mechanics of which would take too long to describe.

However, you can set up the allocation methodology such that, WITHIN EACH CLASS OF EMPLOYEES (shareholders and others, as suggested by Chip Brown), all employees receive the same percentage of pay.

For example, each shareholder might get an allocation of 17.2% of his/her pay and each non-shareholder might get 4.5% of his/her pay. (These percentages will vary each year as the demographics change.) Note that within each class, all employees are treated alike, regardless of age --- hence "age-neutral."

(By the way, this is not the only allocation methodology permitted within each class of employees, but it is the simplest. Other methodologies are left to the discretion and dementia of the reader.)