Mandatory Integration

[sdix401k]

If a standardized prototype plan has inidcated in the plan that for any discrtionary non-elec contribution that will be made on a year by year basis it will be integrated with social security,

1) Can the plan choose to integrate at a 0% level for a specific year

2) Could they choose to ti integrete at a .00001% level for a specific year

The reason I ask is that the plan administrator had given us incorrect compensation numbers for a prior years valuation and we reviewed the file and the original contribution was not integrated.

Any other ideas on how to fix without making an addtional contribution?

Thanks in advance.

[WDIK]

1) Can the plan choose to integrate at a 0% level for a specific year

The allocation formula could be amended prospectively, but not retroactively.

2) Could they choose to ti integrete at a .00001% level for a specific year

See above.

What was the amount of profit sharing contribution made as a percentage of compensation?

[sdix401k]

No, It was a flat dollar amount that was allocated.

I guess my question is if the contribution is discretionary does that mean the integration level is discretionary?

Thanks

[WDIK]

No, It was a flat dollar amount that was allocated.

Fine, but to what percentage of compensation would the flat dollar amount tranlate?

I guess my question is if the contribution is discretionary does that mean the integration level is discretionary?

It does not.

[sdix401k]

1.247%

[WDIK]

Check the plan document for the allocation method. Many documents used a tiered approach under which the integrated portion of the calculation would not actually kick in until the allocation exceeds the 3% level.

It certainly seems possible to me that, because of the contribution level, a pro-rata allocation was the correct result under an integrated formula.

[Leopurrd]

Check the plan document for the allocation method. Many documents used a tiered approach under which the integrated portion of the calculation would not actually kick in until the allocation exceeds the 3% level.

Although I think WDIK is right on, another alternative situation could be that the plan was top heavy and could not use integration for the year (assuming they are on a 2 tier).....

[sdix401k]

The plan was not top heavy in this valuation period.

I have read the document and I see specific steps fors computing the allocation. ( as well as skipping the first two steps if the plan is not top heavy.) There are four steps but it does not seem like I have the ability to alter these steps and the document requires if elected to integrate to us the maximum disparity amount.

Thanks for the input.

[WDIK]

Would you mind sharing the plan language to which you refer? Even Derren Brown would probably have a hard time reading minds over the internet.

[BG5150]

Would you mind sharing the plan language to which you refer? Even Derren Brown would probably have a hard time reading minds over the internet.

I'm no mind reader either, but I'm guessing it is something like:

1) pro-rata up to 3% of comp

2) pro-rata on comp above integration level up to 3% of that comp

3) pro-rata on comp above integration level up to max disparity as defined in docs

4) pro-rata to everyone until desired funding level is achieved

[sdix401k]

(a) If the Employer has elected in the Adoption Agreement that the Plan shall be integrated with Social Security, then the applicable

contributions plus Forfeitures shall be allocated to Participants' Accounts as follows (provided that Steps One and Two, below, need only

be applied in years in which the Plan is Top-Heavy):

STEP ONE: Contributions and Forfeitures shall be allocated to each Participant's Account in the ratio that each Participant's

Compensation bears to all Participant's Compensation, but not in excess of 3% of each Participant's Compensation.

STEP TWO: Any contributions and Forfeitures remaining after the allocation in Step One will be allocated to each Participant's

Account in the ratio that each Participant's Compensation for the Plan Year in excess of the Social Security Integration Level bears to

the excess compensation of all Participants, but not in excess of 3%.

STEP THREE: Any contributions and Forfeitures remaining after the allocation in Step Two shall be allocated to each Participant's

Account in the ratio that the sum of each Participant's Compensation and Compensation in excess of the Social Security Integration

Level bears to the sum of all Participants' Compensation and Compensation in excess of the Social Security Integration Level, but

not in excess of the Maximum Profit Sharing Disparity Rate.

STEP FOUR: Any remaining contributions and Forfeitures shall be allocated to each Participant's account in the ratio that each

Participant's Compensation for the Plan Year bears to all Participants' Compensation for that year.

The Maximum Profit Sharing Disparity Rate is equal to the lesser of:

(1) 5.7% (minus the percentage of Compensation allocated in Step One, if any); or,

(2) 5.4% (minus the percentage of Compensation allocated in Step One, if any) if the Social Security Integration Level

(SSIL) is more than 80% but less than 100% of the Taxable Wage Base under section 230 of the Social Security

Act at the beginning of the Plan Year (TWB); or

(3) 4.3% (minus the percentage of Compensation allocated in Step One, if any) if the SSIL is greater than 20% of the

TWB, but not more than 80% of the TWB, and greater than $10,000.

-16-

(b) In the event the Plan is Top-Heavy and the Employer elects to use Steps Three and Four of paragraph (a) above, then allocations

made on account of Compensation greater than the Social Security Integration Level shall be reduced proportionately to the extend

necessary to provide all Employees entitled to a Top-Heavy Minimum Allocation with the required allocation.

[WDIK]

(provided that Steps One and Two, below, need only be applied in years in which the Plan is Top-Heavy)

If this phrase means that it is required to skip steps one and two in the allocation process, then it appears you are correct that the allocation was made improperly.

If it means that the administrator has discretion as to whether or not the first two steps apply, and step one was implemented, it appears that the allocation was done properly.

[WDIK]

I'm no mind reader either

Now you're just being modest. What other superpowers do you possess?

[Kevin C]

It looks like you use the same prototype document that we do. You will need to look at the adoption agreement. The integration choices are:

 b.1. Use Steps One through Four in Section 2.3.5 of Plan in all cases.

 b.2. Use Steps One through Four in Section 2.3.5 of Plan only when Plan is Top-Heavy.

 b.3. Use Steps Three and Four in all cases. Top-Heavy adjustments shall be made pursuant to Section 2.3.5(b).

 b.4. Limit maximum disparity to _____% (Use when limiting disparity to less than the Maximum Permitted Disparity.)

The choice that was selected will tell you how the contribution has to be allocated.

[sdix401k]

Yes,

B2 was selected so it appears that is was done improperly since the plan is not top heavy.