Age Weighted PS Plan

[dmb]

I don't work on many true age-weighted plans, so i'm a little unsure of myself when it comes to testing requirements. I have an age-weighted PS plan with 1000 hour requirement for allocation. I have several participants who terminated with more than 500 hours but less than 1000 hours. I know for those who get an allocation ebars are equivalent due to nature of age weighted plan. Does true age weighted plan need to be tested in the same way as a new comparability plan?? Thanks.

[Tom Poje]

well, the gateway for an age weighted is satisfied because it meets an age based alloaction, so lets look at it from a different point of view.

(before even getting to nondiscrimination)

suppose 40% of the people termed with more than 500 hours and less than 1000. (or you have a bunch of actives who worked less than 1000 hours and the plan is not top-heavy.

if you were to run coverage testing the ratio % test would fail because its less than 70%. But you might pass the avg ben test.

basically the same would hold true if you were to run nondiscrimination testing.

otherwise if over 70% benefit for coverage, then for nondiscrim the rate groups should all be the same as well and it becomes a moot point, but technically yes, testing should be done.

lets take it one step further. suppose the plan wasn't age weighted, but was comp to comp. if you were to test on an alocation basis and 40% term > 500 hours but less than 1000 hours the same thing would happen. you'd fail coverage, and if you were to test nondiscrim you would get the same results as for coverage (unless the avg ben test passed).

note: sometimes not all e-bars in an age weighted plan are the same. if plan is top heavy, some ees might receive a larger contribution, so their e-bars would be larger than most. if a rare case where someone hit the 415 limit th e-bar could be less than everyone else.

if someone works past normal retirement, the e-bar might be less, a lot depends on how the document is written. consider 2 people both make the same comp, one is age 65 and on is age 70. the person age 70 will receive a smaller contribution! unless the document is written as such to prevent that from happening.

there, more info than you probably care about!

[dmb]

well, the gateway for an age weighted is satisfied because it meets an age based alloaction, so lets look at it from a different point of view.

(before even getting to nondiscrimination)

suppose 40% of the people termed with more than 500 hours and less than 1000. (or you have a bunch of actives who worked less than 1000 hours and the plan is not top-heavy.

if you were to run coverage testing the ratio % test would fail because its less than 70%. But you might pass the avg ben test.

basically the same would hold true if you were to run nondiscrimination testing.

otherwise if over 70% benefit for coverage, then for nondiscrim the rate groups should all be the same as well and it becomes a moot point, but technically yes, testing should be done.

lets take it one step further. suppose the plan wasn't age weighted, but was comp to comp. if you were to test on an alocation basis and 40% term > 500 hours but less than 1000 hours the same thing would happen. you'd fail coverage, and if you were to test nondiscrim you would get the same results as for coverage (unless the avg ben test passed).

note: sometimes not all e-bars in an age weighted plan are the same. if plan is top heavy, some ees might receive a larger contribution, so their e-bars would be larger than most. if a rare case where someone hit the 415 limit th e-bar could be less than everyone else.

if someone works past normal retirement, the e-bar might be less, a lot depends on how the document is written. consider 2 people both make the same comp, one is age 65 and on is age 70. the person age 70 will receive a smaller contribution! unless the document is written as such to prevent that from happening.

there, more info than you probably care about!

Thanks Tom. I understand that ebars could differ, but was mostly concerned with the testing, thanks again.