Proposed repeal of 25% 415 Limit - Impact on Age-Based Plans

[mwyatt]

I'm sure everyone has been following closely all of the proposed pension changes in the House and Senate this summer. One proposal in particular is to change the 415 limit for DC plans to the lesser of $30,000 and 100% of Compensation. On the surface this is great; however, we have a number of age-based plans where there are a few older NHCEs in the population who presently are capped at 25% of pay in their allocation. If this proposal goes through the attractiveness of the age-based allocation could fall dramatically (although a great windfall for these select individuals).

Anyone have any thoughts on this issue?

[mwyatt]

Just refreshing this post... looks more likely that this will go through. Any comments (switch to Class allocation rather than pure age-weighting?). If you haven't thought of this issue yet you may want to. Your doctor client with the one older employee may be in for a shock next year when you tell him that this person making $20,000 previously receiving $5k is now going to get $18k;).

[Richard Anderson]

Can't the plan limit contributions to a maximum dollar or maximum percent? Have the same age weighted formula with a maximum of 25%. The plan would have to pass general test. This might make it subject to the gateway test, also.

Best solution might be class allocation, as you suggest.

[Guest 1950]

Yes, I've thought about that issue. As I understand the proposed rules, only the NHCE *participants* in the cross-tested plan get the gateway. Employees who (e.g., because of their job classification) are not eligible to participate in the cross-tested plan -- even if they can/do participant in another plan of the employer -- don't get the gateway. Bruce J. Temkin (Nashville) did a paper/presentation for the March ALI-ABA seminar in SF on creative solutions using combinations of plans.