Comments With Respect to Prop. Treas. Reg. §§ 1.401(A)(4)-8(B)(1) and 9(B)(2)(V)
Governing So-Called “New Comparability Plans”
March 23, 2001

Contents | Introduction | Summary | I | II | III | IV | V

Analysis

II. Combination of Age and Service in Determining Broadly Available Allocation Rates

In the preamble to the proposed regulations, the IRS and Treasury explain that they see no need to impose a minimum allocation gateway on plans with broadly available allocation rates, such as age-weighted profit sharing plans, because "these plans provide an opportunity for participants to ‘grow into’ higher allocation rates as they age or accumulate additional service." Any schedule of rates under which increases in age or service are positively related to increases in allocation rates satisfies this criterion. Therefore we see no compelling reason why allocation rates under a single schedule of rates should not be allowed to be based on a combination of age and service, rather than solely on age or service.

One objection might be that, under some circumstances, it would be more difficult to apply the requirement that each rate band (with certain exceptions) have the same length. However, this objection would not apply to a schedule of rates that is based on the arithmetic sum (including the weighted sum) of a participant’s age and service, similar to the schedule of rates under a "points" plan. In that case the requirement that each rate band have the same length simply would be applied to the numbers representing the arithmetic sums of participants’ ages and years of service rather than the numbers representing participants’ ages or years of service.

More importantly, as noted in the next comment, we believe that the requirement that each rate band have the same length, if it is adopted as part of the final regulations, would not further the purposes that the IRS and Treasury have identified for the proposed regulations. Instead, as long as increases between rate bands are regulated, this requirement merely would cause plans to reduce the allocation rates assigned to participants with fewer years of age and/or service within what would otherwise be a single rate band. While this would ensure that a participant would earn higher and higher allocation rates as he or she continued to work, which would create the impression of fairness and equal access to higher rates, it would do so by mandating worse treatment of the participant earlier in his or her career, and in our view would do little to ensure equal access to the highest allocation rates under the plan.

Contents | Introduction | Summary | I | II | III | IV | V