Two tiered MP allocation

[Guest LoloV]

Could a MP plan that currently contributes 9% of compensation change the allocation formula to allocating 9% of comp to existing participants and 6% to new participants? If so, would a rate group test on an allocation rate basis be the required test to prove nondiscrimination? I realize the rate group test can be done on an equivalent benefit rate basis also, but I would like to avoid this.

I've worked on PS plans that give different allocation rates per divisions and have performed the rate group test as listed above to test nondiscrimination. I'm just not sure if being a MP plan changes things or if the participation date "grouping" matters.

Thank you in advance.

[Mike Preston]

The testing for a MP plan is identical to the testing in a PS plan.

Separating into two groups based on date of hire is a "good" thing in the sense that it will very likely satisfy the definition of a reasonable grouping and therefore allow you to use the average benefits test and, if passed, a 70% threshold.

I have some somewhat unkind things to say about testing being limited, in advance, to allocation rate testing. Does your client know that you are not in the mood to embrace testing which might be the best thing for the client? Believe me, there are much more harsh ways of saying this.

Of course, if the reason you want to stick with allocation rate testing is that you have confidently concluded that it will always be the best result for the client, I withdraw the prior paragraph.

But if the reason you want to avoid it is that your organization or you are not prepared to do so efficiently, I'm back to the now prior prior paragraph.