"We have a debate in the office. A 401(k) plan with an Integrated (4-tier) PS allocation that uses 100% TWB. (Excerpts from AA and BPD below.)
Can the plan choose to use less than 100% TWB (e.g., 46% TWB) as long as the allocation is applied in the same non-discriminatory manner?
Per AA:
'(b) [X] Permitted disparity. In accordance with the permitted disparity allocation provisions of Section 3.04(B)(2), under
which the following permitted disparity formula and definition of "Excess Compensation" apply:
Formula (select one of (1), (2), or (3)):
(1) [ ] Two-tiered.
(2) [X] Four-tiered.
(3) [ ] Two-tiered, except that the four-tiered formula will apply in any Plan Year for which the Plan is top-heavy.
Excess Compensation. For purposes of Section 3.04(B)(2), "Excess Compensation" means
Compensation in excess of the integration level provided below (select one of (4) or (5)):
(4) [X] Percentage amount. 100% (not exceeding 100%) of the Taxable Wage Base in effect on the first day of the Plan Year, rounded to the next highest $ (not exceeding the Taxable Wage Base)...'
Further, per the basic plan document:
'(2) Permitted disparity allocation formula. The Employer in its Adoption Agreement may
elect a two-tiered or a four-tiered permitted disparity formula, providing allocations described in (a) or (b) below, respectively. The Employer also may elect a two-tiered permitted disparity formula which changes to four-tiered in any Plan Year in which the Plan is top-heavy.
(a) Two-tiered formula.
(i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same
ratio that each Participant's Compensation plus Excess Compensation (as the Employer defines that term in its Adoption Agreement) for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this first tier, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4%, or 4.3%) listed under
Section 3.04(B)(2)(c).
(ii) Tier two. Under the second tier, the Plan Administrator will allocate any remaining Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.
(b) Four-tiered formula.
(i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer Contributions
for a Plan Year in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation. Solely for purposes of this first tier allocation, a "Participant" means, in addition to any Participant who satisfies the allocation conditions of Section 3.06 for the Plan Year, any other Participant entitled
to a Top-Heavy Minimum Allocation. For purposes of both first tier and second tier allocations under this Section 3.04(B)(2)(b), Compensation and Excess Compensation refer to Compensation as determined under Section 10.06(A).
(ii) Tier two. Under the second tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Excess Compensation (as the Employer defines
that term in its Adoption Agreement) for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation.
(iii) Tier three. Under the third tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this third tier, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4%, or 1.3%) listed under Section 3.04(B)(2)(c).
(iv) Tier four. Under the fourth tier, the Plan Administrator will allocate any remaining Employer Contributions for a Plan Year in the
same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.
(c) Maximum disparity table. For purposes of the permitted disparity allocation formulas under For this purpose, the Taxable Wage Base is the contribution and benefit base under Section 230 of the Social Security Act in effect at the beginning of the Plan Year. The integration level is the
uniform amount specified in the Employer's Adoption Agreement...' "