Granger Company has a profit sharing plan for its 10 employees. Three of the employees are...

Granger Company has a profit sharing plan for its 10 employees. Three of the employees are highly compensated and receive annual bonuses. The other seven employees are hourly employees who receive overtime pay periodically. Which of the following provisions would be considered discriminatory in the company's plan allocation formula? Please give detailed explanation.

A. The plan provides a higher rate of allocation for employees who have more years of service.

B. The plan defines compensation to include bonuses but not overtime pay.

C. The plan provides a higher rate of allocation for employees whose compensation is above the Social Security integration level.

D. The plan defines compensation to include base salaries and hourly pay only.

Expert Solution

Answer:- B. The plan defines compensation to include bonuses but not overtime pay.

Reason:- Granger Company has a profit sharing plan for its 10 employees. Out of this \

3 are - Highly compensated and receive annual bonuses.

7 are - Receive overtime pay periodically.

A profit sharing contribution must demonstrate non-discrimination in either the form of allocations or benefits. Now lets take each option:-

A. The plan provides a higher rate of allocation for employees who have more years of service. - Non descriminatory becasuse older participants have less time to retirement, and thus require larger allocations to reach the same benefit level.

C. The plan provides a higher rate of allocation for employees whose compensation is above the Social Security integration level. - Non Descriminatory because Integration method is allowed under design based safe harbour rules.

D. The plan defines compensation to include base salaries and hourly pay only. - This is non descriminatory as pays of all 10 emplyees are allocated on the same basis.

Now coming to the answer:B. The plan defines compensation to include bonuses but not overtime pay. - This is descriminatory in favour of 3 highly compensated employees whose bonuses are included and against 7 employees earning overtime(which is not include)

ekkarill92 answered 2 years ago

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