Integration rules

[FAPInJax]

A client is asking a question regarding the following formula:

20% of compensation plus .65% per year (maximum of 35) of compensation in excess of covered compensation

The issue is with an employee who has 40 years of service at retirement. The plan calls for fractional accrual based on service.

They are being questioned on whether they can accrue the benefit over more than the 35 years.

I am not aware of anything that prohibits the above formula from being accrued on a fractional basis. Am I missing something??

[AndyH]

It isn't prohibited. It just doesn't integrate properly which means it isn't a safe harbor and must be tested.

[SoCalActuary]

I agree. The 401(l) rules would have limited the integration service to 35 in the denominator. In addition, the flat benefit portion would have required at least 0.65% accrual per year, effectively a cap at (20 / 0.65) years to provide parity between the integrated and basic benefit.