Age Weighted Profit Sharing Allocation

I have an age weighted profit sharing plan that I am working on.  I haven't seen many of these in my 20+ years. Plan Document is SunGard PPA. NRA in document is age 55. UP-1984 8.5% is mortality table.  Based on the document the units are determined by multiplying compensation by the table factor on years to NRA and table factor of adjustment factor if NRA is not 65.  Does the adjustment factor change for those over 55?  Our testing software is using the adjustment based on participant's current age if over Age 55.  This appears reasonable, since the participant's NRA is their current age since they are still employed.  Or would the adjustment factor remain at Age 55 even if the participant is over age 55?

I can't find any documentation on this and ERISA Outline Book doesn't have much on Age Weighted allocations and there is not much on the web doing a general search.

This depends on how the document is written. I have an age weighted plan which is written to use the same factor once retirement age is reached (thus 2 people making the same comp (one at NRA and another older than NRA)) will receive the same contribution. otherwise the older individual would receive a smaller contribution.

I don't remember exactly how I did it, but I created a mortality table the software uses  and it works, though of course if there were few people past NRA I could have simply hand calculated the value and overridden things after running eligibility on those people. (running eligibility determined the points for each participant)

The example I used in the Coverage and Nondiscrimination Answer Book (page 11-22) is as follows: (Warning: I am a nut case and into the different ramifications that can happen in situations like this)

Example 11-9. Two employees, one age 65 (Employee 1) and one age 70 (Employee 2), each earn $100,000 per year. Normal retirement age is 65. The plan uses the UP 1984 mortality table, the preretirement interest rate is 8.5 percent, and the postretirement interest rate is 8.5 percent. Contributions for the year total $50,000. If the plan used APR at actual age if one works past normal retirement (assuming an APR of 84.0341 at age 70), the result would be as follows:

Employee 1: $100,000×95.3828×.01=95,382.80 (53.16 percent of total)

Employee 2: $100,000×84.0341×.01=84,034.10 (46.84 percent of total)

Total Points179,416.90

Employee 1 will receive $26,581.33 ((95,382.80÷179,416.90)×$50,000)

Employee 2 will receive $23,418.67 ((84,034.10÷179,416.90)×$50,000)

The end result would seem to be discriminatory toward an individual who works past normal retirement age.

To get around the problem of discrimination, most plans are written to use the APR at normal retirement age when determining the number of points. Since both employees make the same amount of money, using the same APR would result in the same contribution for both employees—in Example 11-9, $25,000 a piece. But what happens when you perform nondiscrimination testing (in which case the APR used is for the actual age of an individual who works past normal retirement age)? [Treas. Reg. § 1.401(a)(4)-12, definition of testing age] A review of the E-Bars would result in the following expression:

Contribution×(1.085)^{Years to Retirement}÷APR×12÷Compensation

Note. Neither employee has any years left to retirement.

Employee 1: $25,000×(1.085⁰)÷95.3828×12÷$100,000=3.145

Employee 2: $25,000×(1.085⁰)÷84.0341×12÷$100,000=3.570

This would seem to raise the possibility of failing nondiscrimination testing. However, a plan will not fail discrimination testing merely because allocations are made at the same rate for employees who are older than their testing age (determined without regard to the current age rule in paragraph (4) of the definition of testing age in Treas. Reg. § 1.401(a)(4)-12) as they are made for employees who are at their testing age. [Treas. Reg. § 1.401(a)(4)-8(b)(1)(ii)]