Permitted Disparity - s/b interesting

[Gary]

Is it true that a Plan does not have to comply with the max. permitted disparity of 401(l), but still qualify and pass 411 and 401(a)(4)?

That is a Plan can potentially have a formula of 1% up to cov comp plus 2% above cc and sll potentially qualify?

Is it also true that a company did not have to amend its SS offset Plan for TRA '86, but did so to pass 401(l) and potentially qualify for a safe harbor plan? I mean, why else would a Plan amend its SS offset Plan?

Gary

[rcline46]

No plan has to comply with 401(l) even if integrated at some level or some disparity. If it does not comply with 401(l) then to prove non-discrimination it must pass the 410(B) and 401(a) rules either as cross tested or on a contributions basis. Imputing disparity may be used in this testing.

401(l) does give a type of offset formula but much different from the old rules. It is curious that we are seeing questions in 2001 about offset plans when amendments had to be done by the end of the plan year beginning in 1994!

[david rigby]

Correct. IRC 401(l) is essentially a safe-harbor definition of SS integration. As always, if you fall outside of safe-harbor, then 401(a)(4) testing applies.

[Gary]

with regard to rcline's response.

Points well taken. Yes, it has been quite a while since these changes were mandated, but certain issues come up still and I had been doing public EE db work for many years. So it would appear that accrual rates, as you say could be done on a cross tested basis or benfits basis (as opposed to contributions basis). Did you mean benefits basis, since the cross tested method is on a allocation basis.

Even though the rules took effect many years ago, many plans still use a SS offset plan. Which lead me to the question as to why some Plans maintain SS offset plans and some do not. My belief is so the Plan could pass non discrimination under a safe harbor.

Look forward to hearing further comments.

Now if the db plan is the only plan then isn't it true that cross testing

[david rigby]

Gary, not exactly on point to your comment, but

be careful about safe harbor. We have noticed that quite a few safe harbor plans do not pass the general test.

[Gary]

pax, I agree that meeting 401(l) does not guarantee that it passes 401(a)(4).

What I am trying to determine is a little background. That is, did plans amend from ss offset to 401(l) offset, in order to meet permitted disparity, in order to potentially qualify as a sa harbor?

gary

[rcline46]

Yes, many changed to 401(l) offset so the formula became (hopefully) safe harbor and no testing was necessary.

As pax mentioned, many safe harbor plans will not pass general testing methods, that is why they are used.

If only a db plan, it can be tested on a benefits basis or a contributions basis. Usually will stick with benefits basis. Don't forget your friend -11(g) if you fail!

[Gary]

So what we're saying is that if a Plan meets a safe harbor, then it is deemed non discriminatory, even if it would fail the general test (if such test were performed)?

Thanks much.

[david rigby]

Yes, being a "safe-harbor" plan means that the plan is deemed to be non-discriminatory. But be careful about this because the plan must be safe harbor in all areas, not just in the permitted disparity. This includes such issues as the definition of comp, normal form, uniformity of benefits, etc.

For example, I had a plan that was safe harbor (actually quite vanilla) in all areas except that the normal form was a life annuity with 10 years certain. This failed the safe harbor definition because the SS integration was defined assuming a life annuity. General Test.

[Gary]

So since the Plan did not have a life annuity as normal form, it did not meet safe harbor and thus the general test was necessary.

Makes sense.