Milberg Consulting

A qualified plan can use an allocation formula that integrates with Social Security. This relatively simple allocation method skews the total contribution allocation percent towards those individuals who typically earn in excess of the Social Security Wage Base (SSWB). The integrated contribution compensates those employees for the loss of Social Security benefits on income that exceeds the Social Security Wage Base (SSWB). The maximum permitted disparity is the lesser of a maximum percentage or the base contribution as follows:

5.7% if the integration level is 100% of the SSWB ($90,000 in 2005) or 20% or less than the SSWB ($18,000 in 2005);

5.4% if the integration level is more than 80% of the SSWB ($72,001 in 2005) but less than 100% SSWB ($90,000 in 2005); or

4.3% if the integration level is more than 20% of the SSWB ($18,000 in 2005) or 80% or less than the SSWB ($72,001 in 2005).

Selection of the optimal maximum percentage and the corresponding percentage of the SSWB provides an allocation of the highest percentage of the total contribution to those individuals who typically earn in excess of the Social Security Wage Base.

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The information provided is intended as a general resource, not as investment or retirement planning, or legal plan compliance advice or counsel. If you consider any actions discussed in this update, we suggest that you consult a qualified planning, tax or ERISA professional. ERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this update. Any tax advice included in this written or electronic communication is not intended or written to be used, and it cannot be used, by the taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.