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Tiered Retirement Contributions
Benefits & Compensation
Tiered Retirement Contributions
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
One possible way to address pay compression is to attack it from the benefits component of total pay. For example, new hires would get a 6% employer contribution that would rise to 8% upon a key promo
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Tiered Retirement Contributions
posted at 2/2/2011 7:49 AM EST
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Posts: 1
First: 2/2/2011 Last: 2/2/2011 |
One possible way to address pay compression is to attack it from the benefits component of total pay. For example, new hires would get a 6% employer contribution that would rise to 8% upon a key promotion and finally to 10% after the second and last key promotion.
The range of employer contributions to the 403b plan are common in higher ed. I heard that it may be illegal to do this in a private institution but legal in public ones (from where I based this structured change). Is this true? If so, are there legal alternatives to create a tiered defined contribution plan in the private sector to address pay compression? Thanks! |
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Tiered Retirement Contributions
posted at 2/2/2011 10:03 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
I know little about 403(b) pland but do know they differ substantially from 401k plans and here is just one article about 401k plans and their requirements: "To prevent employers from designing 401k plans that economically benefit only highly-paid personnel, lawmakers wrote compliance test mandates into the rules governing 401k plans. In general, no plan can be set up in a way that discriminates "as to the availability of rights, benefits and features" available to different employees under the plan. Specifically...... The most common compliance tests are the ADP test, ACP test, multiple-use test and top-heavy test. The ADP test (Actual Deferral Percentage test) compares the percentage of salaries that different classifications of employees are diverting into the 401k plan. The ACP test (Actual Contribution Percentage test) compares the percentage of employer contributions being diverted into the 401k accounts of different classifications of employees. The multiple-use test compares the results of the ADP and ACP tests. The top-heavy test looks at how much higher-paid employees' money dominates the 401k plan." from http://www.401keasy.com/basics/basicsans.html The key being the availability of the same rights, features and benefits for all employees. |
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Tiered Retirement Contributions
posted at 2/4/2011 10:48 AM EST
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Posts: 1047
First: 4/11/2002 Last: 9/14/2011 |
I don't work on 401(k) plans but I could see where potential discrimination issues could come into play depending on the % of your total workforce that is ascertaining these promotions. If you based the contribution increases on length of service, this would probably mitigate the risk of failing any discrimination tests, assuming you don't have significant turnover in the general workforce.
My recommendation would be to have a discussion with retirement plan administrator. They will keep you in compliance. |
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