401(k) contributions based on age & service

[Guest Nautical]

Is it possible to have a 401(k) act like a DB plan? What type of plan provisions need to be in place to past the discrimination testing? just curious.....

[wmyer]

What you are asking about is an age-weighted or new comparability plan. The profit sharing contributions are tested for nondiscrimination based on projected benefits at normal retirement age, rather than based on contributions.

[Guest Nautical]

Thank you, I will need to look into cross testing.

[Guest Nautical]

Is cross testing necessary for a plan that contributes the same percentage to all employees and increase this contribution percentage once a participant reaches the social security taxage wage base? For example, 8.5% up to $90,000 and 14.5% after $90,000. Would this be considered a new comparability plan?

[david rigby]

No, that would be considered "integrated" or "permitted disparity". Your example fails the safe harbor for permitted disparity, so it could then be tested under the General Test, on a benefits on contribution basis.

[Tom Poje]

you could also have a points plan. I have seen 1 of these in my life.

e.g. X points for each $200 of comp

Y points for each year of service

I thought you could also have Z points for each age, but I don't see that in the Corbel prototype.

..................

an age weighted plan, while cross tested, usually passes testing since all ees have the same e-bar (unless someone is past NRD) or more than 30% of the ees receive 0 due to last day rule or hours requirement. there is no gateway minimum in an age weighted plan.

[Guest Nautical]

Thank you.... DB plans are so expensive to fund for small employers, just looking at alternatives....