max compensation for points allocation

[M Norton]

employer plan as a qualified retirement plan with a points system where they allocate X points for compensation and Y points for years of service. Do the limits for max compensation and annual addition apply to this type of plan? I would have said yes, but an attorney is questioning the salary cap.

Thanks!

[Tom Poje]

gad zooks. maybe I worked with this lawyer many many years ago, back when the form 5500 for small plans could be filed as a C or a R.

The C had a question "Did the plan limit comp to the 401(a)(17) limit?"

The form R didn't, so it was 'ok' if you didn't limit the comp as long as that was the form you filed.

no really, that was the argument I was given.

just what part of 1.401(a)(17) where it says a plan can't base an allocation in excess of the annual compensation limit is unclear?

even the example found in 1.401(a)(4)-2(b) has 2 people with comp at 150,000 (the limit at the time the example was created)

is that considered a coincidence that the IRS simply used that amount and not a larger amount?

[ESOP Guy]

gad zooks. maybe I worked with this lawyer many many years ago, back when the form 5500 for small plans could be filed as a C or a R.

The C had a question "Did the plan limit comp to the 401(a)(17) limit?"

The form R didn't, so it was 'ok' if you didn't limit the comp as long as that was the form you filed.

no really, that was the argument I was given.

just what part of 1.401(a)(17) where it says a plan can't base an allocation in excess of the annual compensation limit is unclear?

even the example found in 1.401(a)(4)-2(b) has 2 people with comp at 150,000 (the limit at the time the example was created)

is that considered a coincidence that the IRS simply used that amount and not a larger amount?

gad zooks?????

[Tom Poje]

a ggogle search reveals:

A term used to signify alarm. Popularized by comics, used on the the 1960's Batman show.

though a little more research confirmed that I remember it from a Bugs Bunny cartoon

"Yankee Doodle Bugs" (1954).

MY favorite scene is where George Washington gets his "notice"- he calmly walks up to his mailbox, opens the letter and exclaims, "GADZOOKS! I've been DRAFTED!!", and just as calmly walks back towards his house.

Then, he rides his horse into a 'Candy Shoppe' and declares, "Martha, you'll have to run the candy stores alone, while I'm off to fight the war". Now, this joke hinges on the fact that, in 1954, there was a nationwide chain of "Martha Washington Candy Stores"

[jpod]

My interpretation of the question is whether people earning more than, let's say, $300,000, can be in a group that is different from everyone else's group, but the allocations for people in the above $300k group will nonetheless be based on compensation not in excess of the 401(a)(17) limit. Tom Poje are you saying that THIS is impermissible?

[Tom Poje]

I have never seen a document that calls for a points plan AND puts people into group.

I've seen documents put people into groups, and then the allocation has always been comp to comp.

I would think you could, with customize language, put people into different groups, and have an allocation based on points with a different formula in each group, but I've never seen it.

[ESOP Guy]

For what it is worth I agree with Tom. I started with the gad zooks quip because of that.

I interpret the original question as something like a Safe Harbor Points Allocation, which you typically see them giving 1 point for every $100 or $200 of compensation and 1 point for every year of service. When giving those points you would stop at the compensation limit imposed by law.

By the way the term Safe Harbor Points Allocation is like the “interim final” regulations. What kind of Safe Harbor requires a test to make sure it still passes?