I have a 1500-life plan that excludes "productivity pay" from the definition of eligible earnings. By and large, it represents an annual bonus paid to mid-level and production employees, not one of whom is an HCE.

I ran a "smell test", and found that for the group that gets paid a "productivity bonus", about 2% of total earnings are not eligible. So, about 98% of possible earnings are counted toward computation of the pension benefit. On the other hand, for my HCE group, about 99.5% of total earnings (ignoring the $205k limit) are included in the pension calculation.

On the face of it, I don't think this is discriminatory, but cannot find any hard and fast rule in the Code or regs. that specifies what the threshold is for a discriminatory definition of pay.

Any thoughts, short of submitting a demonstration to the IRS?

Your test for NCE compensation must include ALL NCEs, not just those who have pay limited. It might be that under this condition the average may exceed 98%.

There is no rule as to what a 'de minimus' amount is under 414(s). I feel comfortable at under 3%. Others have different opinions.

Thanks. You make a good point, and indeed with other NHCE's in the mix, the average percentage of "includible" pay is 98.4%.

Have you ever submitted a demo to the IRS, and if yes, have they given you any feedback about what is considered discriminatory?

Why would you ignore the 401(a)(17) limit? I'm not sure that is right.

Andy,
I see your point, and I think there may be some latitude there, but I am just trying to be conservative for now.

Believe me, I would like to make the argument that some of my HCE's only have a 33% inclusion ratio:

$205k included/$615k in total pay

I would consider that extremely aggressive, not conservative. Each person is limited to $205,000 under the law, so if each is being treated as if they have $205,000 in pay, then each is at 100% IMO.

Andy,
I think I confused you. In my opening post, my inclusion %'s have considered HCE's at 100% if they were making more than $205k, even if they had some of their pay excluded (as long as it does not take them below $205k).

I think we are on the same page.

Mike,

Understood. Sorry for the confusion.

BTW, we have the same Award placques on our walls. Mine (I won 2-on consecutive days) came 7 years after yours. Small world. Now if I could only motivate myself to study for the EA tests like you did!

Those EA tests are so easy; they are giving the designation away to all who want it.

Andy,
So you won the prestigious Martin Rosenberg award? Belated congrats.

The EA tests were hard back in 91-92, and I am thinking they must be much harder right now, but Blinky seems to disagree.

Yeah, we're in the same club. I won it twice. There is actually someone who won three times. I qualified a third time but no cigar.

I have no idea what Blinky's icon means. As if he hasn't already disguised his true self enough!

I won biggest catch at the Annual Boat 'n Bass Marathon of Fishin'.

BTW, it my attempt at self-deprecating humor. I thought they were hard too.

Not if you are prepared!

That must be quite a fishin' contest out there in Phoenix.