Money Purchase Plan Integrated Formula

[eilano]

We've got a client with a non standardized document with an allocation formula stated as follows: a) 16.5% of each eligible participant's compensation during such plan year up to $150,000; plus b) 5.7% of each eligible participant's compensation during such plan year in excess of $60,000, up to $150,000. Does anyone see a problem with this formula? They happened to receive a determination letter.

[Ervin Barham]

Two questions..

Is the $150,000 cap built into the formula?

Is the $60,000 limit stated as a dollar amount?

If so, your plan does not meet the permitted disparity rules now. It may have been fine when the letter was issued. You may be okay if you can demonstrate that the plan is non-discriminatory under the cross-testing rules. IRS may try to throw you out of the prototype status, though.

If the plan has a last day, 1000 hour provision, and this is for the plan year ending in 1999, you could get it amended. Remember that you must file a 15 day 204(h) notice when amending a M/P plan.

Of course, these comments are of a general nature without seeing all of your plan document.