Each in Own Group - Integrated

[austin3515]

Got a new comp plan where everyone is in their own group, and the plan is a prototype and therefore bound by reasonable classification for the NHCE's.

I find it to be reasonable that everyone who is over the wage base gets their stepped up contribution. And because of the size of the company, I'm below the maximum number of allowed allocation rates. What I'm getting at, is may I run an integrated allocation, as long as the number of allocation rates does not exceed the maximum allowed.

Could the application of the integration rules be deemed a reasonable classification?

[Bird]

I've always felt that you either have an integrated formula or you don't. I think you are saying there is only one class, and that class will get an allocation based on an integrated formula, but (IMO) that formula is totally arbitrary, and just because there is consistency in calculating it doesn't make it any less arbitrary. Therefore, everyone actually has their own allocation rate.

[John Feldt ERPA CPC QPA]

I think you should be able to test by imputing disparity - use 100% of the taxable wage base. This should give you the results you seek.

[austin3515]

I'm actually pretty positive that there are sepaate allocation rates. The definition of allocation rates for this specific purpose is just contriubtions divided by comp - no integration.

The question is solely can this be considered a reasonable classification. Bird, you are saying it would not be.

[Bird]

I'm actually pretty positive that there are sepaate allocation rates. The definition of allocation rates for this specific purpose is just contriubtions divided by comp - no integration.

I agree. If you have multiple people under the integration rate, then they all have the same allocation rate. But the others above would have different allocation rates, unless they happened to have the same comp. But I don't think that helps you...

The question is solely can this be considered a reasonable classification. Bird, you are saying it would not be.

Correct, unless you can somehow rephrase what you mean by "classification." I don't find the statement "I find it to be reasonable that everyone who is over the wage base gets their stepped up contribution." to be a definition of a classification. Oh wait, if you are saying something like this:

Participants who are A dollars over the wage base get X.

Participants who are B dollars over the wage base get Y

(etc)

and the number of groups is under the max allowed, then at least you have what I would call classifications. But, if they are reasonable, I don't know. I think I vaguely recall an IRS person stating that compensation is a reasonable way to define a classification, but I'm not too confident in that. I chose to avoid the issue by not using prototypes.

[austin3515]

I chose to avoid the issue by not using prototypes

We unfortunately did not realize the error of our ways on this decsion until it was too late. But for PPA we wisened up. But then of course they eliminated this requirement for prototypes in PPA )(at least I think they did)...