LIFE'S POTENTIALS: Introducing ABC Plus.

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While regulation is often perceived negatively by the business community, sometimes it can be welcome news. The non-discrimination regulations for pension and profit-sharing plans are an example of rules that have actually enhanced the ability of employers to meet business and personal objectives on a cost-effective basis.

The new regulations modify and simplify earlier regulations released in September 1991. They have produced a new plan design offering selective benefits for key employees. Aged-Based Contribution Plus (ABC Plus).

What Makes These New Plans Possible?

Pension and profit-sharing plans may not discriminate in favor of highly paid employees. To ensure this, the Internal Revenue Service has drafted regulations establishing objective standards and tests that all plans must satisfy.

These regulations permit a plan to satisfy the non-discrimination requirement by providing employees with either non-discriminatory contributions (input) or non-discriminatory benefits (output). Historically, defined benefit pl

The non-discrimination regulations provide standards that permit "cross testing.'' This means that defined benefit plans may satisfy the non-discrimination standards based on contributions (input), and defined contribution plans may test based on benefits (output).

Enhanced Cross Testing Options

The regulations proposed provide two alternative testing methods. A plan may provide compliance at the individual participant level, or a plan may group participants and base the test on the average benefits provided to each group. Testing at the group level using average benefits creates a unique plan sometimes referred to as "new comparability."

By applying this technique, a plan can be designed which provides one contribution rate to a select group of employees, with a different and much lower rate (or rates) for employees, with a different and much lower rate (or rates) for employees who are not part of the select group. As long as the plan can demonstrate that the average benefits of the highly paid employees are equivalent to those of the non-highly paid group, the plan will be non-discriminatory.

The beauty of ABC Plus is that employers have complete control over which employees are included in the select group.

For example, the select group could be designed to cover:

* Highly compensated employees

* Owners and key executives

* Long service employees

* Officers and managers

In this respect, ABC Plus offers many of the advantages...