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

    Will the Social Security Cap Increase Help It Last Longer?

    The Social Security cap increase will be 7% in 2017, but even that may not be enough to keep Social Security from running out of funds.
  3. 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.
  4. Retirement

    Are Social Security Benefits a Form of Socialism?

    Socialism is a loaded word in the U.S., but Social Security, one of the nation's most popular benefit programs, is wholly government-run.
  5. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  6. 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.
  7. 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.
  8. 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.
  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

    Understanding Rules on Defined Benefit Pension Plans

    Defined benefit plans offer advantages to both employers and employees. Employers must understand the federal tax rules when establishing these plans.
Frequently Asked Questions
  1. What are Some Examples of Free Market Economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement, ...
  2. Who Decides When to Print money in India?

    Find out the role of the Reserve Bank of India, or RBI, and the amount of authority given to the government. Learn who is ...
  3. What is the Difference Between a Forward Rate and a Spot Rate?

    Learn about spot and forward contracts, how spot and forward rates are used for spot and forward contracts, and the difference ...
  4. What are Some Examples of Stratified Random Sampling?

    Learn what simple random sampling and stratified random sampling are, some examples of stratified random samples, and how ...
Trading Center