Weighted Age plus Service allocation

[dmb]

Would an allocation schedule with tiers based on (2 times Service) plus Age still be allowed to meet minimum gateway requirement by meeting the smoothly increasing criteria??

[Mike Preston]

More detail, please.

[Mike Preston]

You need to define not just the way the bands are determined, but also the formula. Certainly, if the formula is somehow related to the ratios created by the numeric values of the bands (points), then you would have bands running from a low of 25 to a high of, say, 161 or so (48 years of service at age 65). If the formula then provided the first band (25) with a base benefit multiplied by the ratio of all potential band values (summing 25 through 161 gives us 12,741 and 25/12,741 is 0.1962%) it would work just fine. Your challenge would then be to defined the base benefit in a way that would work for the client. For example, if the base benefit were something like 10, then a person in the band you've described as being associated with the number 25 would get a contribution of 10 * 0.1962% which is 1.962% of pay, while someone age 65 with 48 years of service would get a contribution of 10 * (161/12741) which is 12.6364% of pay. Is that what you had in mind?

Let's presume you have a plan that has specifically two participants, one who falls in band 25 and the other falls in band 161. If the formula were as above, the contribution would be 1.962% of pay of the band 25 participant plus 12.6364% of pay of the band 161 participant. What it would NOT be would be to divide a random profit sharing contribution up so that the band 25 participant received 1.962% / (1.962% + 12.6364%) which is 13.4398% of the contribution with the band 161 participant receiving the balance (86.5602% of the contribution). Strange, isn't it, that given the assumption that the participant in band 161 makes more than the participant in band 25, the allocation that works provides a smaller benefit to the band 25 participant than the allocation that doesn't work?

I have left out top-heavy considerations, but suffice it to say that is a separate calculation that must be satisfied.

[dmb]

Thanks for the response. I'm going to have to let it sink in before responding with additional questions or details.

You need to define not just the way the bands are determined, but also the formula. Certainly, if the formula is somehow related to the ratios created by the numeric values of the bands (points), then you would have bands running from a low of 25 to a high of, say, 161 or so (48 years of service at age 65). If the formula then provided the first band (25) with a base benefit multiplied by the ratio of all potential band values (summing 25 through 161 gives us 12,741 and 25/12,741 is 0.1962%) it would work just fine. Your challenge would then be to defined the base benefit in a way that would work for the client. For example, if the base benefit were something like 10, then a person in the band you've described as being associated with the number 25 would get a contribution of 10 * 0.1962% which is 1.962% of pay, while someone age 65 with 48 years of service would get a contribution of 10 * (161/12741) which is 12.6364% of pay. Is that what you had in mind?

Let's presume you have a plan that has specifically two participants, one who falls in band 25 and the other falls in band 161. If the formula were as above, the contribution would be 1.962% of pay of the band 25 participant plus 12.6364% of pay of the band 161 participant. What it would NOT be would be to divide a random profit sharing contribution up so that the band 25 participant received 1.962% / (1.962% + 12.6364%) which is 13.4398% of the contribution with the band 161 participant receiving the balance (86.5602% of the contribution). Strange, isn't it, that given the assumption that the participant in band 161 makes more than the participant in band 25, the allocation that works provides a smaller benefit to the band 25 participant than the allocation that doesn't work?

I have left out top-heavy considerations, but suffice it to say that is a separate calculation that must be satisfied.