Maximum Excess Allowance Greater than 5.7%

[Guest gmag00]

1.401(l)-2 of the Treas. Regs. states that, in performing an integrated profit sharing allocation calulation, the maximum excess allowance for a plan year is the lesser of: 1) the base contribution %; or 2) the greater of: a) 5.7% (as required to be reduced if the integration level is different that the taxable wage base) or b) the % rate of tax under OASDI, currently 6.2%, (also as required to be reduced for fractional taxable wage base concerns). Therefore, if, for example, an integration calculation is performed with a base contribution % of 7%, the regs seem to indicate that the maximum excess allowance could be as a high as 6.2%. However, I have never seen anything greater than a 5.7% maximum excess allowance allocation in any prototype plan or considerd within any general discussion of the topic. Is there a problem with exceeding the 5.7% limit that is not evident from simply reading the regs?

[Guest Sieve]

The reg says the greater of 5.7% or "the old age insurance portion of [OASDI] . . ." (Treas. Reg. Section 1.401(l)-2(b(2)(ii)(B).) The IRS, however, doesn't tell us how much of OASDI is represented by the OA portion. So, for the time being, we're stuck with 5.7%.

Notice that the reg also requires the Commissioner to publish the rate IF it exceeds 5.7%, &, in that case, also to publish a revised integration level table. I've yet to see any such numbers or tables published.

[Jim Chad]

gmag00 Are you asking what would happen if you used a formula of, for example 10% on the excess?

If you did this, you would not have a safe harbor allocation formula and you would have to pass general nondiscrimination testing.

[Guest gmag00]

Thx Sieve and Jim. I missed the "old age insurance portion of the OASDI" part of the regs and that's where I started down the wrong path. Much obliged.