Points based service based allocation

[dmb]

Does a profit sharing allocation that is a points based allocation based on service where participants get a share of the contribution based on the ratio of their years of service to the total years of service of all participants meet any kind of designed base safe harbor?  It's basically a pro rata allocation based on service.  Thanks. 

[ESOP Guy]

No

[Mike Preston]

ESOP Guy, are you sure?  Maybe the question should have been: "... meet any kind of design based safe harbor without further testing?" because 1.401(a)(4)-2(b)(3) sure seems to be a safe harbor as described, but only  if 1.401(a)(4)-2(b)(3)(B) is satisfied (average of HCE's must not exceed average of NHCE's).

[ESOP Guy]

I am happy to be told I am wrong.  A couple observations:

1)  In a sense you have to tend it because the HCE average can't exceed the NHCE average. 

2)  I have never seen a points based plan that doesn't include serviced and comp  But reading it again it does seem to say you can skip the points based on comp.  So maybe I am wrong. 

[Belgarath]

Yes, I think the term "design based" safe harbor is sometimes a little confusing. The uniform points plan is a "safe harbor" but it is a NON design based safe harbor. In the design based safe harbor, you don't have to test the allocations. In this uniform points non-designed based safe harbor, you do, as Mike pointed out. And I agree that while you must grant points for service or age (or both) granting points for compensation is optional.

[dmb]

Yes, agreed, Mike's rephrasing of the question would have been better.  Thanks for all the responses.  This is a prospect and i am waiting to see employee data to see how it turns out.  Thanks again.