Super Integrated

[Logan401]

I just ran across a plan that has profit share using the "super-integrated allocation formula." It is a 2 step formula, giving the following:

Level One: At least 8% given to eligible participant's compensation not in excess of $65,000.

Level Two: Any remaining contributions will be given to eligible participant's compensation in excess of $65,000.

I was told that the client has provided in years past a 25% contribution for the 2nd level, and for the 2008 plan year they amended the $65k to $100k.

Does the formula breach any contribution rules?

[Bird]

That formula is just not a safe harbor - if you use a safe harbor formula, e.g. where everyone gets the same percentage of pay, it is deemed to be non-discriminatory and you don't have to run any tests on the allocations to prove that it is non-discriminatory.

With a formula like this, you run the allocation, get the results, then you have to test the results for discrimination. In this case, you'd almost certainly have to convert the contributions to projected benefits and test the benefits (aka "cross-testing").

The bottom line is, you can have just about any formula you want, as long as it is clear, but the results may be subject to testing.

[Mike Preston]

No.

However, a formula like the one you cite does not satisfy the IRS' rules on nondiscrimination without demonstrating compliance numerically. Hence, it is possible that the formula results in prohibited discrimination. It is also possible that it does not.

[Logan401]

No.

However, a formula like the one you cite does not satisfy the IRS' rules on nondiscrimination without demonstrating compliance numerically. Hence, it is possible that the formula results in prohibited discrimination. It is also possible that it does not.

Thank you for your answers. So, it appears that "super" integrated formulas are not truly integrated formulas unless they meet the safe harbor requirements. If they do not, they are really a New Comparability method in disguise.

[Bird]

So, it appears that "super" integrated formulas are not truly integrated formulas unless they meet the safe harbor requirements. If they do not, they are really a New Comparability method in disguise.

Yes and no. I think I know what you mean, but they are integrated formulas, they are just not safe harbor formulas using permitted disparity.

They are, or at least were, used often as a way to achieve a New Comparability result. Back in the day, there were concerns about formulas being "definitely determinable" so carving a plan into groups and allocating pro rata to each group was somewhat aggressive, so we used super integrated formulas instead. I think the IRS was right and kind of miss that challenge, but they caved in and now it's a lot easier and cleaner to just allocate to groups.

[Logan401]

" I think the IRS was right and kind of miss that challenge, but they caved in and now it's a lot easier and cleaner to just allocate to groups."

Are super-allocated formulas still permissable today? I interpret the above as meaning the IRS only allows group allocations now. Or are the super integrated formulas using the different pay thresholds as the 2 groups?

[Bird]

They are permissible now. I just meant it is easier for us to have groups and directly decide what each group gets.