Potential age discrimination in cross-tested plan?

[Guest mo again]

We have a number of cross-tested plans that identify allocation groups by age or year of birth. Contributions for each allocation group are discretionary. I recently read somewhere that this may violate ADEA. Any thoughts?

[Guest Donkey Kong]

In a world of prejudice and discrimination, I say give everyone lots of money and a big hug.

[Kirk Maldonado]

Mo Again:

Those plans tend discriminate in favor of older participants, so it seems hard to imagine why they would violate the rules prohibiting age discrimination against older participants. However, this is just my uneducated opinion. If anybody know else has a more enlightened perspective, I'd be very interested in hearing it.

[Kirk Maldonado]

Donkey Kong:

Remember that giving people big hugs may get you sexual harassment lawsuits, so I'd stick to giving them lots of money.

[Guest mo again]

Kirk:

I would have thought so too, although in some professional organizations where the contribution is a non-shared expense, an older participant in his or her own allocation group may electively choose to receive a lower contribution or no contribution. I don't know if the fact that the participant has made the choice is relevant to the discrimination issue.

[david rigby]

I don't remember how it is phrased, but isn't there an exemption under ADEA for benefits under a "bona fide employee benefit plan"?

[Guest mo again]

pax, the actual (excerpted) language is this:

(f) It shall not be unlawful for an employer, employment agency, or labor

organization-

(2) to take any action otherwise prohibited under subsection (a), (B), ©, or (e) of this section-

(B) to observe the terms of a

bona fide employee benefit plan

(i) where, for each benefit or benefit package,

the actual amount of payment made or cost incurred on behalf of an older worker is no less than that made or incurred on behalf of a younger worker

, as permissible under section 1625.10, title 29, Code of Federal Regulations (as in effect on June 22, 1989); or

ii) that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of this chapter.

This is all I'm aware of, and I don't like the looks of it.

[Richard Anderson]

We have a takeover plan that has three classes for allocation.

1. HCEs

2. NHCEs under 45 years old

3. NHCEs 45 and older

The HCEs get 415 max.

The NHCEs 45 and older in the past have gotten an allocation of only the 3% TH minimum because they are not helping the plan pass 401a4.

The NHCEs under 45 get the minimum to pass 401a4 (currently about 7%).

This plan was designed to give a smaller contribution to older participants, and has done so for the two years since being amended for the allocation classes.

Anyone have any thoughts on this. Will the IRS have any trouble with the definition of allocation classes at restatement time? From the document language they might infer that the purpose of the allocation classes is to give the older participants a greater contribution, just the opposite of the real purpose.

[Guest mo again]

I have gotten plans approved with this type of allocation group definition, although the age distinctions generally apply to HCE's rather than NHCE's (lower contribution rates for the younger ones, MOST but not ALL of the time).

In any event, I'm not sure whether our problem, if there is one, would be with IRS or DOL. I would venture to guess the latter. If an IRS issue, probably an operational rather than a document issue, maybe?

I don't know if the definition itself would interest the DOL immediately or not. Until this attorney mentioned in passing that he doesn't use age distinctions due to ADEA concerns, it never occurred to me that it would be a problem.

[Kirk Maldonado]

For what it's worth, my recollection is that the EEOC has jurisdiction over age discrimination issues.

[rcline46]

In my humble, non-attorney opinion - GET RID ON ANYTHING THAT OVERTLY USES AGES! Use -11(g) amendments to pass the tests, even if you think are deducted in the next year.

[IRC401]

Question: If you had a DB plan, there would be a 411(B)(1)(H) issue/problem. Is there anything in the cross-testing rules that makes that provision applicable to a DC plan that is tested as a DB plan?

[Guest mo again]

IRC401, I am not aware of anything extending 411(B)(1)(H) to the cross-tested defined contribution plan, although I believe it was part of the rationale behind 1.401(a)(4)-8(B)(1).

[Kirk Maldonado]

PAX:

When you were referring to a "bona fide employee benefit plan" were you referring to giving hugs?