Age based and new comparability plans

[Moe Howard]

A professional actuary has recently allocated a proposed $10,000 contribution among a plan's 3 participants (A, B, and C)under both an age based plan and a new comparability plan.

Under the age based: The $10,000 will be allocated ... A=60%, B=15%, and C=25%. [6000+1500+2500 = $10,000].

Under the new comparability: The $10,000 will be allocated ... A=70%, B=10%, and C=20%. [7000+1000+2000 = $10,000].

MY QUESTION:

Suppose that the employer NOW decides to contribute an amount OTHER THAN $10,000. And that the employer does not want to pay the actuary to compute a new allocation.

Can the employer use the same "allocation PERCENTAGES" that the actuary earlier determined when it was thought that the contribution would be $ 10,000 ?

[Blinky the 3-eyed Fish]

Sure, and while he's at it he can file the 5500, restate his own plan for GUST and adopt the appropriate EGTRRA amendments. Increasing the amount and keeping the same ratio does not necessarily yield the same result.

[rcline46]

In an age-weighted plan ratios would work. In a new comp plan probably not. Why?

Ahhhh the professional secret! Which I will not disclose. Those who have studied cross-testing and plan design will know, those who haven't ..... get professional help. Do it yourself appendectmies lead to peritonitus, which is usually fatal.

[Blinky the 3-eyed Fish]

Rcline, there are situations where it does not work for an age-weighted plan either.

[Tom Poje]

you should be careful about making a blanket statement

'yes, you can use the same percentages'

without knowing the facts...

suppose in the age weighted plan the ee at the bottom received the top heavy minimum. Therefore, if you increase the contribution, he might not receive anything more.

you simply don't know based on the limited data provided.

[rcline46]

Blinky and Tom are right of course, it would not work in all cases. From the information given, the age weighted deposits for the two lower ees is greater than that of the new comp, so they are getting more than 3% (also we do not know if it is for 2001 or 2002) in the age weighted. They could be against the 25%/100% limit either with the shown allocation or the increased allocation under the age weighted design.

Also who is checking the 15%/25% of pay deduction limit?

Please folks, these calculations are done by trained profesisonals. Don't try this at home!