Qualified plans may be integrated with Social Security to balance the benefit bias toward lower paid employees that is inherent in the Social Security system. Integration allows the employer's retirement plan to be combined with Social Security to result in an overall retirement scheme. Under an integrated plan, greater contributions or benefits are provided for higher paid employees whose compensation exceeds than the Social Security wage base.


The "permitted disparity" places a limit on the allowed difference between either benefit accruals or contributions for highly paid employees vs. lower paid ones.

A. Defined benefit plans
An integrated defined benefit plan must be based on average annual compensation, defined as an average of at least three years' consecutive pay.

Two methods to integrate defined benefit plans with Social Security:

  • Excess method - Plan provides a higher level of benefits for compensation above what is called the "integration level." The integration level typically is what is known as the Social Security covered compensation, which is the average Social Security wage base for the 35 years up to and including the employee's Social Security retirement year.
  • Offset method - Plan formula reduced by fixed or formula amount designed to take into account Social Security benefits.
B. Defined contribution plans
Defined contribution plans may utilize only the excess method to integrate with Social Security.

In general, for a defined contribution plan:
  • the maximum spread between the two contribution levels must be no more than 5.7% and
  • the contribution rate above integration level may be no more than twice the rate below it.


Factors affecting contributions or benefits

Related Articles
  1. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  2. Retirement

    The Purpose of a Social Security Statement

    Learn what information your Social Security benefit statement contains and how you can use the information to more intelligently plan for retirement.
  3. Retirement

    What Will Social Security Look Like When You Retire?

    Many workers are not confident that Social Security will be around during their retirement. Here's what you need to know about its future.
  4. Retirement

    Can the Market Affect Social Security Benefits?

    What you should know about the relationship between the stock market and your monthly Social Security check.
  5. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  6. Financial Advisor

    IRA Holders: How to Avoid this Huge Mistake

    Here's why using your IRA funds to delay taking Social Security benefits may be a good option for more financial security in retirement.
  7. Retirement

    Social Security's Insolvency and Your Retirement

    The Social Security system could run out of money by 2031. Here's a look at some proposed solutions to the problem and what can be done to prepare.
  8. Financial Advisor

    What Will My Social Security Check Look Like?

    It's important to know what your Social Security check will look like in retirement. Here's how you can figure it out.
  9. Retirement

    What's a Defined Contribution Plan?

    A defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.
  10. Financial Advisor

    When Taking Social Security Early Can Make Sense

    Sometimes it makes financial sense to take Social Security early. Here's a look at when this might be a good idea.
Trading Center