Use in Pension Plans
The pension compensation nondiscrimination laws (Internal Revenue Code Section 401(a)(4)) require that qualified pension plans not discriminate in benefits, rights and features in favor of highly compensated employees (in 2007, the threshold is $100K of 2006 gross pay including bonuses and overtime). Because Social Security provides a progressive benefit formula and stops taxation at the SSWB, pension plans may integrate benefits or contributions according to a wage base, frequently at a fraction (e.g. 50%) of the SSWB.
Read more about this topic: Social Security Wage Base
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