supplemental contribution requiring 5 yrs. of service

[Guest Cal]

If a DC plan (which otherwise meets the 1 year of service participation requirements of 410(a)) contains a supplemental employer contribution requiring 5 years of service, does the plan satisfy the participation requirements of 410(a)?

Does the answer to the above question change if the plan has received a satisfactory IRS determination letter?

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[Guest PAUL DUGAN]

It is possible to base the rate of contribution of length of service. I have seen this done in a number of situations. However the allocations must pass the general non-discrimination test each year. We have found this to be quite difficult in a small plan particularly if the increase for service is substancial.

The IRS approval only means that at the time the plan was submitted that the plan passsed and this may only be true if the IRS request asked for review of 401(a)(4) test. Even than if the demographics of the plan has changed it might not be a qualified allocation formula now (demographics always change)

[Guest PAUL DUGAN]

It is possible to base the rate of contribution of length of service. I have seen this done in a number of situations. However the allocations must pass the general non-discrimination test each year. We have found this to be quite difficult in a small plan particularly if the increase for service is substancial.

The IRS approval only means that at the time the plan was submitted that the plan passsed and this may only be true if the IRS request asked for review of 401(a)(4) test. Even than if the demographics of the plan has changed it might not be a qualified allocation formula now (demographics always change)