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

    8 Types of Americans Who Won't Get Social Security

    Most Americans eventually get Social Security retirement benefits. Those who don't need a solid Plan B.
  3. 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.
  4. Retirement

    How Social Security Will Change In 2015

    The average retiree’s check will rise by 1.7% in 2015, the Social Security Administration says. And the ceiling on taxable earnings will rise, as well.
  5. 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.
  6. Financial Advisor

    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.
  7. 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.
  8. Retirement

    How Social Security Works After Retirement

    Millions of Baby Boomers are looking forward to collecting benefits, but several factors can affect how much they get and whether the money is taxed.
  9. Retirement

    4 Things That Are Reducing Your Social Security

    Worried about Social Security dwindling? We discuss four ways it’s already happening.
  10. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
Frequently Asked Questions
  1. What's the Best Way to Contact Warren Buffett?

    Learn how to contact Warren Buffett and what kinds of contact is most likely to receive a response from him or from his company, ...
  2. What is the Financial Services Sector?

    A diverse group of companies, beyond banks and credit unions, comprises the financial services sector.
  3. Who are Whole Foods' (WFM) main competitors?

    Whole Foods' main competitors are Sprouts Farmers Markets and Trader Joe's. However, the recent acquisition by Amazon my ...
  4. What caused the Stock Market Crash of 1929 that preceded the Great Depression?

    Find out what led to the stock market crash of 1929, which in turn led to the Great Depression. It sparked a nearly 90% loss ...
Trading Center