Non-Standard Prototype Plan

[Guest PAL100759]

Can a non-standardized prototype plan permit different participating employers (from within the same controlled group) to make and allocate different levels of employer contribution? For example company/division A gets 4% and company/division B gets 8%.

Benefits Link Q & A #12 under Prototype plans seems to clearly say no. I addition, the sponsor of that Q&A column was kind enough to reply back to my inquiry and let me know that nothing had happened that would change the answer listed. I looked at Rev Proc 2000-20 and concur.

The problem is that the recordkeeper is telling me that a Non-standardized prototype can provide for this type of allocation. I'd like to get some additional feedback from others on this. Thanks.

PAL

[Guest Bob K]

If the provisions of the document allow so and the different benefiting groups pass coverage testing then it is allowable.

I am fairly confident of this answer because my company sponsors an IRS approved plan (opinion letter) that has this feature.

[Guest PAL100759]

Thanks for your response. When I look at Rev Proc 2000-20 I see:

"...Thus, an M&P plan generally may not provide different allocation rates or different benefit formulas for different employees, such as two percent of compensation for salaried employees and one percent for hourly ..."

It does seem to provide exceptions for basic uniform points/permitted disparity type formulas but that doesn't work form me. Am I missing something in this Rev Proc or has new guidance come out?

[g8r]

Under Rev. Proc. 2000-20, you cannot have different allocation rates for different members of a controlled group.

However, there are prototype plans out there that do allow for this. The reason is because the IRS makes mistakes. And, this is a fairly easy mistake for the IRS reviewer to make because they don't have any checks and balances on this issue (in other words, it's not a question on the prototype application form (series 4461) and it's not in the LRMs). So, to the extent the IRS approved the provision, then that's their mistake and you would have reliance.

[Guest LoloV]

I am currently working a plan that specifies different allocation rates per division. HCE's do not benefit in the PS portion of this plan, they do however receive a PS contribution under a seperate PS plan (it's a PS for salary employees of this employer only.) In addition, this employer is part of a controlled group with 3 additioinal companies that sponsor their own PS plans.

I was under the impression I could prove the different allocation rates in the first plan are non discriminatory by performing rate group testing. This should not be a problem since the HCE's do not benefit.

Is this incorrect? I am working with a protype document. Thanks!