Benefit accruals

[Guest Salvador A Mander]

Can a plan be designed to exclude compensation earned for service in an eligible job classification for accrual purposes? For example, employee earns $60,000 for entire plan year, but $20,000 was earned as a union employee or, say, a worker of unit x (which may or may not have its own plan, and assuming their exclusion satisfies the nondiscrimination requirements). Can the employer contribution be allocated based on the $40,000, or must it include all $60,000?

I can't think of any policy reason for excluding this, provided the nondiscrimination tests would be satisfied, perhaps based on the full $60k.

Has anyone ever considered this question?

[Tom Poje]

the most recent sample language for the LRMs (Listing of Required Modifications) (Oct/11) [these pertain to prototypes]

found at

http://www.irs.gov/pub/irs-tege/dc_lrm1011.pdf

has the following

LRM 94

The employer will specify in written instructions to the plan administrator or trustee, by no later than the due date of the employer’s tax return for the year to which the employer’s contribution relates, the portion of such contribution to be allocated to each participant allocation group. The employer contributions allocated to each participant allocation group will be allocated among the employees in that group in the ratio that each employee’s compensation, as defined in section _____ of the plan, bears to the total compensation of all employees in the group. In the event that an eligible employee is included in more than one participant allocation group, the participant’s share of the employer contribution allocated to each such group will be based on the participant’s compensation for the part of the year the participant was in the group.

in the case of union employees, any testing is done separately (comp while union and comp while not union)

in the case of an individaul who is always non union, you would still test on total comp, but the contribution would be split depending on which grouped the person was in.

Q and A 31 at this year's ASPPA Conference was answered this way:

Plan has 2 allocation groups - 8% contribution to "day shift employees" and 5% contribution to

"night shift workers." The plan requires 1000 hours to receive an allocation, but no last day

employment requirement. For the current plan year, Bob starts out the year working the day

shift, and completes 1,200 hours in that status. Then, during the year, he switches to night shift

and works an additional 800 hours for the remainder of the year. (a) How should his allocation

be determined? (b) If it is determined that the formula applies based on whether the participant is

a day shift or night shift employees as of each hour, does the fact that the contribution rate per

hour decreases when the employee transfers to the night shift create a 411(d)(6) issue? © If the

employee is entitled to both the 5% and the 8% contribution rate for his hours, how does that

affect the general test under IRC section 401(a)(4)?

Our answer. (a) This is primarily a plan drafting issue. The question is whether a participant's contributions are

determined on an hour-by-hour basis, depending on whether each hour is earned on the day shift or night shift, or

whether all hours are treated the same based on a participant's classification as of a particular date. If the document

is ambiguous, the plan administrator will have to interpret the plan. (b) No 411(d)(6) issue. The change in contribution

rate is due to an employment change, not a plan amendment. © The employee's contributions will be combined to

compute his EBR, and then he will be placed into the appropriate rate groups for general nondiscrimination testing.

IRS answer. The IRS agreed with our analysis. They added that the document could take an approach where it

identified a date as of which the classification as a day shift or night shift employee is determined (e.g., first day of the

plan year, last day of the plan year), and then compute the contribution for all hours for that plan year based on that

classification, regardless of the individual's classification for each hour within the plan year.