Full-time for specific RATE of contribution

[austin3515]

There's no problem with providing a different rate of contribution for full-time vs. part-time employees, correct? So full-time ee's get 5% and part-time get 3%.

Thanks!

[chc93]

One possible complexity I see is the group definition of these employees. I'm not sure full-time and part-time would be good for the definition of the groups. I've seen date of hire, years of service, job titles, officers, owners. But if each participant is in his own group, I guess you can do anything... but if not a reasonable classification, probably gotta pass 70% ratio for coverage.

[austin3515]

But what law am I breaking to distinguish the rate of contributions based on full-time/part-time? I'm in compliance with 410(a). And I'd say full/part-time is a reasonable business classification (not that I even need the average benefits test in my case).

[My 2 cents]

Part time status and being able to complete 1000 hours of service per year are not mutually exclusive. Many part time employees would, for all purposes of compliance testing, be non-excludable.

I would be concerned about passing coverage on the separate groups, especially if there aren't enough part-time employees who are HCEs.

[austin3515]

And this one is - she works 30 hours a week which the employer considers part-time. So you're saying that having a separate rate for "part-timers" would not create a problem? I suppose if we were giving them a 1 basis point contribution that would be an obvious circumvention but in my case the benefits are less, but still very meaningful.

I've "read some" about nondiscrimination, and I'm "pretty sure" that won't be an issue... Based on "primitive" knowledge of the subject

[Kevin C]

I'd be concerned about using full-time/part-time as the criteria for a couple of reasons. First, the IRS seems to really get bent out of shape over the use of "part-time" in plan provisions. Also, I'd be concerned that deciding between full and part-time status might be seen as using employer discretion in determining which allocation class they are in. I think I would have everyone in their own group and the phrase "part-time" would not appear on the written contribution instructions required by our document.

[austin3515]

"Also, I'd be concerned that deciding between full and part-time status might be seen as using employer discretion in determining which allocation class they are in."

Since when has the IRS had a problem with that? I actually think the classification is going to be pretty objective and I'm told there is no one in a gray area. Ee's are either 40 hours a week and there is this one employee who is 25 hours a week. Is this really so different from top-heavy minimums?

[david rigby]

Consider that the counting of hours for IRC 410 and 411 was put in ERISA precisely to avoid this situation.

[austin3515]

I don't think it was. I think it was meant to ensure that ELIGIBILITY met the requirements set forth. There is no corresponding requirement as to the equitability of the AMOUNT oft he contribution once you are eligible.

[My 2 cents]

Hasn't the IRS essentially prohibited any sort of employer discretion with respect to the administration of pension plans? This goes back many years. Plans used to condition the availability of lump sums on employer approval, but that is absolutely unacceptable now. They are allowed or they are not allowed and the employer can have no control over who can take a lump sum and who cannot (except through unconditional plan provisions like "no greater than $10,000). Leaving anything up to the discretion of the sponsor virtually guarantees that it will be handled in a discriminatory way and is thus barred by the IRS.

[austin3515]

Whoever came up with the pre-approved plan language did not get the memo as both PT and VS allow each participant to be a separate group with essentially no parameters on establishing who is in what group.

[chc93]

Another thought, which I think is OK. What about "salaried" and "hourly". Would that fit your criteria? 40 hrs/wk is "salaried", less than that is "hourly".

[My 2 cents]

Salaried vs hourly would appear to be an objective basis. An attempt to write into the plan that the distinction is between hourly and salaried and NOT have it defined based on the method actually used to determine compensation (i.e., 40 hrs/wk = salaried, less than 40 hrs/wk = hourly instead of hourly = people paid $X for each hour worked, salaried = people paid $Y per pay period irrespective of the number of hours actually worked) could appear to be a subterfuge and might not fare well on audit.

Listing employees by name in subgroups (even having a separate subgroup for each employee) is also objective, although it would probably preclude use of the average benefits test since there would be no discernable rational basis for the distinction.

Not saying that everyone has to be treated the same (not that that is a bad idea!) but that the determination as to who gets what has to be (to use an old phrase) definitely determinable based on the provisions of the plan. The IRS has enormous, complicated rules for determining whether disparate treatment under a plan is acceptable or not, but no real discretion may be reserved to the employer within the plan document (which must provide all distinctions on an objective basis).

[austin3515]

I tried every other way to slice it. This is the only uniqueness. TAG does not seem to have a problem with it FWIW. I'm going with that...

[austin3515]

"Not saying that everyone has to be treated the same (not that that is a bad idea!) but that the determination as to who gets what has to be (to use an old phrase) definitely determinable based on the provisions of the plan. The IRS has enormous, complicated rules for determining whether disparate treatment under a plan is acceptable or not, but no real discretion may be reserved to the employer within the plan document (which must provide all distinctions on an objective basis)."

I cannot understand what you are basing this on. I think it is widely accepted that "definitely determinable" is a joke in the wake of the IRS's blessing of "everyone is in their own group." The definitely determinable criteria has been reduced to the Plan Administrator arbitrarily coming up with a list of who gets what. And since they have blessed these documents with absolutely no limitations, it seems hard for them to raise "definitely determinable" as an issue.

[My 2 cents]

What I was trying to say:

Even if arrived at arbitrarily, if there is a written basis (consistent with the plan document) for objectively determining what each person will get, that would be definitely determinable and not a matter of employer discretion (once reduced to something that is part of the overall written plan documentation). Whether that basis will pass muster under the non-discrimination and coverage rules may need to be considered.

[Bird]

I cannot understand what you are basing this on. I think it is widely accepted that "definitely determinable" is a joke in the wake of the IRS's blessing of "everyone is in their own group." The definitely determinable criteria has been reduced to the Plan Administrator arbitrarily coming up with a list of who gets what. And since they have blessed these documents with absolutely no limitations, it seems hard for them to raise "definitely determinable" as an issue.

This might be a little above my pay grade, but while I agree that "definitely determinable" is effectively a joke, that doesn't mean that you can ignore it. That is, they threw in the towel a long time ago on "everyone is in their own group." At least the groups are definitely determinable. I would not use classifications that are not absolutely positively clear-cut and therefore potentially subject to interpretation. "Full time" and "part time" might appear to be obvious under the current circumstances, but what if they hire someone on an hourly basis who works 7 hours a day...7.5...8? "Salaried" and "hourly" are better, but I wouldn't use them. I'd take the easy way out and put everyone in their own group and then just decide to give all of the people you/they determine to be "full time" the percentage allocation you/they want, and give the "part time" person whatever you/they want.

[austin3515]

I disagree that "everyone in their own group" is definitely determinable. It is the definition of indefinite. It is physically impossible to give one contribution to the left half of Johnny and another to his right half. Therefore, the document is essentially say there is no rhyme or reason here and we can do whatever we want.

I of course agree that it needs to be clear cut and not gray. This client has assured me that everyone works 40 hours a week except for two people who work 6 hours a day. But there are no gray areas. So I defined full-time in my document (even before I read your notes ) To be anyone who works more than 35 hours a week and Part-Timers is everyone else (so I left myself a nice buffer).

And if one more person (including TAG!) tells me I have to make sure I pass coverage and nondiscrimination I might scream (not that you would hear me of course ).

[Kevin C]

Yes, everyone in their own group lets you do whatever you want provided there are no issues with what we are not supposed to tell you about. But, it's not the PS contribution amount that has to be definitely determinable, it's the allocation method. Everyone in their own group tells you which allocation group each person is in. The plan probably also says that the contribution designated by the employer for each allocation group is allocated among that group in proportion to compensation. It should also have a provision dealing with what happens if someone ends up qualifying for more than one allocation group, although hopefully that won't happen if everyone is in their own group . The only discretion the employer has is in deciding how much the contribution will be for each allocation group. Once that is done, the plan provisions determine who gets what. It makes more sense if there are fewer allocation groups. The IRS just decided to let you have as many groups as you have people. Is it logical? Maybe yes, maybe no. But how often has the IRS been logical?

What happens if one of those 6 hours-a-day people ends up working more than 35 hours a week for part of the year? Or, what if one of the 40 hours-a-week people gets hurt and ends up working fewer hours?