401(l) - Permitted Disparity

Question 1

Maximum Permitted Disparity in a DC Plan? Can a DC use an excess plan or offset plan?

Answer 1

Min(base, max(0.057, FICA tax)). FICA tax is set at 5.7% currently

Replace 5.7% based on integration level:
TWB – 5.7%
80% - 100% TWB 5.4%
Max(20%TWB, 10000) – 80% TWB 4.3%

Excess Plan Only

Question 2

What is the Social Security Retirement Age?

Answer 2

65 < 1938
66 between 1938 and 1954
67 > 1954

Question 3

What plans cannot have permitted disparity?

Answer 3

• 401(k) pre-tax elective deferrals
• 401(m) EE or ER matching contrib.

Less Tested
• SARSEP
• ER does not pay wages for FICA / FUTA
• ESOP or TRASOP

Question 4

What is Taxable Wage Base and Covered Compensation?

Answer 4

Taxable wage base is the portion of your wages that the Social Security tax will be applied to.

Covered Comp is the average of the last 35 years of the TWB.

Question 5

What is the annual disparity fraction and what is its limit?

Answer 5

It is the sum across all plans of the disparity provided / possible disparity under the plan. Its limit is one.

Less Tested
Imputed disparity plan => Fraction is 1
Determined Regardless of if ptp benefits under plan
For multiple formulas – greater of => greater of imputed disparities. Sum of 2 => Each plan is separate.

Question 6

What is the cumulative disparity limit (Definition and Limit)?

Answer 6

The limit is 35 and it is the sum of the disparity fractions

Question 7

Final Average Comp for permitted disparity puposes

Answer 7

Average of last 3 years of salary limited to taxable wage base

Question 8

Maximum permitted disparity in a DB excess plan

Answer 8

Lesser of 0.75% and the gross benefit %

Question 9

Maximum permitted disparity in a DB offset plan

Answer 9

Lesser of 0.75% and

0.5 * gross benefit % * (Average Annual Comp/FAC < offset) Where last fraction is less than 1

Question 10

How is PD adjusted for Early Retirement age?

Answer 10

PD can be increased by the Early retirement adjustment factor

Question 11

Do you need to satisfy maximum permitted disparity on all FOPs?

Answer 11

Yep

Question 12

How do you satisfy maximum permitted disparity on level annuity forms and non-level annuity forms?

Answer 12

Level Annuity Forms - don’t normalize, convert benefit using plan factors and see if meet MPD req’ts

Non-Level Annuity Forms - normalize the two portions of the benefit then see if you statisfy the MPD req’ts

Question 13

What is the maximum offset/IL?

Answer 13

Excess Plans - TWB

Offset Plans - FAC