Non-elective contributions based on employee-seniority

[Guest Lisha]

Thank you in advance for guidance:

Is it permissible for an employer to make non-elective contributions to employees based on seniority, where the employees with the greatest seniority will receive a larger percentage contribution than those employees who are newer to the not-for-profit organization?

The employer wishes to provide appreciation to senior staff members as well as encourage newer employees to remain with the organization, but the employee is concerned about possible discrimination to HCEs.

Currently, there are very few HCEs and a great number of NHCEs, but the HCEs tend to be those with seniority.

Any help or guidance is appreciated.

[Guest Lisha]

Anyone out there who can help me?

[mbozek]

Not really. The question you raised requires a legal opinion involving age discrimination since senority can be a proxy for age. There is no discrimination issue under the IRC for a 457 plan.