Can allocation group be based on age?

[jkharvey]

The plan wants to provide for different allocation groups for the two doctors. One would be physicians over age 45 and the other would be physicians 45 and under. Can we do this? I've always been wary of using age for things like exclusions from participation and such. Is it a problem for Xtested allocation groups? Thank you.

[GMK]

Apart from everything else, age 45 may not be the best choice.

Just be careful not to discriminate against employees who are age 40 and older with regard to the priviledges of employment.

[J Simmons]

I agree with GMK, and would add that you should not

discriminate against employees who are age 40 and older with regard to the privile[]ges of employment

vis-a-vis those that are younger than 40.

If both doctors are age 40 or older, then ADEA should not be a concern. If one is over 40 and the other under 40, you should have no problem if the older one always receives a company contribution that is as great as the younger one, both when measured as percentages of current compensation and EBARs.

[GMK]

Thanks, John, for pulling me off the ledge (oops).

Should jkharvey's doctors be concerned with any factors other than ADEA for age-based allocation groups?

[J Simmons]

The IRS has issued d-ltrs to plans that use age criteria as the OP set forth. So from a tax qualification perspective, probably no problem as long as cross-testing passes.

Other anti-discrimination laws should be considered too. Race, religion, gender, etc.

[jkharvey]

Thank you all so much. It is a bit comforting to know that IRS has actually issued letters where age was the basis for classification. I realize that doesn't mean they would do it for every plan.

[ak2ary]

You have to be careful that categories based on age or service classifications do not violate 410(a), by making a zero contribution

Consider a PSP that has different allocations for the following groups

Under age 30

Ages 30-39

ages 40 -49

Ages 50 -59

Age 59 and over

There is nothing wrong with making different allocations to each of these groups, as long as if any group gets an allocation, the first group gets an allocation. Otherwise you have in essence set up an effective age requirement of 30

In your example, if in one year the empployer chose to give a 0 allocation to the younger doctor, while the older doctor got a contribution, the IRS would say that you have an impermissible age requirement because Doctor Two would have benefitted under the plan if he were older than 45. This is the case even though Doctor Two is likely am HCE and the design likely passes nondiscrim testing

[Belgarath]

Reviving an old post here. I just saw a plan using age as one of the primary factors in the groups, and it makes me squeamish, yet I couldn't fnd any specific prohibition.

Can you elaborate a bit re the 410(a) comment? As long as the plan has allowable age and service requirements, why is there a 410(a) issue? Have you seen a real situation where the IRS has asserted this, or do you have any sort of a citation?

Thanks!

[AndyH]

Belgarath, 1.410(a) has some good examples.

A simple one, exaggerated but on point:

Employer A establishes a plan that covers employees after they retire and does not cover current employees. Any employee who works past age 60 is treated as retired. This plan effectively has an age 60 age requirement, in violation of 410(a)'s 21 limit.

[ak2ary]

Or look at my allocation groups above

Assume the employer elects to make different contributions for each group

It can elect to make a zero contribution for some groups if it wants but

if it makes a zero for the first group, in order to benefit you need to be at least 30

That violates the 410(a) age service rules

Same thing if you had service based classifications and gave contributions to everybody except those with less than 5 years or something like that