Age Weighted PSP

[imchipbrown]

Is their anything wrong with using an interest rate outside the 7.5% to 8.5% range used for Safe Harbor Target Benefit Plans in an Age Weighted Profit-Sharing Plan? Employer likes Age Weighting, but wants a little bigger allocation for the employees. A lower interest rate would work.

[Tom Poje]

Nothing wrong, per se, I guess. Recall the examples used for minimum gateway testing and whether a plan satisfies broadly available rate bands. Those examples generally used 5 year age brackets, but there is no reason you couldn't use 1 year age brackets, which is what takes place in an age weighted plan. I believe it would have to be individually designed, thus I think you would have to get a determination letter. And then you would have to test for nondiscrimination - though if you are using a lower interest rate I can't imagine the plan failing when you test using a higher interest rate.

The ERISA Outline book describes an true age weighted plan as one that uses interest rates between those used for non discrimination testing. The Corbel document checklist (and I am sure any of the others) would only allow you to use between 7.5 and 8.5% interest rates, hence the necessity of going individually designed.

[mwyatt]

The 7.5%-8.5% corridor is taken from the definition of standard interest rates contained in the final 1.401(a)(4) regulations. I suppose that one could use a lower interest rate, which would produce less than "optimal" (by way of skewing towards older, presumably HCE participants), but your general test would need to be performed using a corridor rate. So, one consequence is that you would need to really run the General Test, instead of relying on the mathematical certainty that all participants have identical accrual rates if you had used a corridor interest rate (only exception being those who get a higher allocation due to IRC 416). Now, one would assume that results would pass, but I don't think you could necessarily make that blanket statement if you have NHCE parts who were older than the owner.

[david rigby]

A plan could also divide the allocation. For example, allocate $100 to all particicpants. Then allocate whatever is left using an age-weighted formula.

[Blinky the 3-eyed Fish]

The Corbel document checklist (and I am sure any of the others) would only allow you to use between 7.5 and 8.5% interest rates, hence the necessity of going individually designed.

Tom, don't you think that making this small a change would just be a modification to the VS document and not call for it to be individually designed?

[Tom Poje]

my understand would be no.

In other words, I have a checklist. The gov't has looked at that checklist and issued a letter saying everything is ok. Now I am changing something, even though, in this case it is small, it has changed something the govt hasn't given its 'smell' test to.

Dang, I hate to tell, the checklist in regards to class allocation has room for 5 classes. We're not even sure if you 'add' a 6th class if that changes thing

[Blinky the 3-eyed Fish]

My experience is that I have never made modifications to a document great enough to force a plan to be individually designed. The worst we do is when a defined benefit plan's standard language benefit formula is gutted and replaced with language written by our firm to provide for differing benefit groups under a floor offset situation. Entire sections are created and/or modified, but yet we have never had a problem getting determination letters under the VS document language. Obviously, we disclose the modifications as required by answering "yes" to Q 7c of the 5307.

So, that is what is confusing me about making one change to a document and calling it individually designed. Tom, have you tried in similar situations to still submit it under the VS document and just disclosing the modification?

[Tom Poje]

perhaps. I don't do the documents in the office so I could be using incorrect language.

Ultimately (I think) you have said the same thing, you submit for a determination letter - you do not rely on the opinion letter..