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New Comparability Contributions - made throughout the year


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Here are the specifics:

SH - 3% nonelective

PS - allocation method - new comparability - everyone in their own group - plan document indicates plan year compensation is used for allocation purposes - no allocation conditions.

Plan is Top Heavy

The client would like to make quarterly SH and PS contributions throughout the year.  My question is do we need to perform the required new comp. cross-testing (rate group/non-discrimination/gateway) for each allocation if the HCEs are receiving a greater contribution than the NHCEs? or do we just need to make sure it passes at the end of the plan year?  If we do need to test each time a PS contribution is made, what code section indicates this?

Any insight would be greatly appreciated.

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From a practical standpoint, I have  no issues with the safe harbor 3% being deposited quarterly.  You come to the end of the year and true up as needed.  Money is 100% vested.  No big deal.

The profit sharing being deposited each quarter does annoy me because at best it is an estimate based on the Plan Year Comp.  Sure you could true it all up at the end of the year.  But, I don't want the plan to be putting in too much money for some and then you have to remove it with earnings....  yuck.  The scenario for profit sharing does not feel efficient at all for me.  Cross testing can be challenging in and of itself one time a year. 

Does the plan have self employed individuals?  If so, the difficulty goes up in my mind.

What is the vesting schedule?  You don't want to get into a participant getting a guesstimate of profit sharing at end of second quarter, terminating, and then getting paid out the wrong amount.

I'm assuming too much, but it seems to be more efficient for the ER to set aside funds quarterly in their own bank account and then do the profit sharing at the end of the year.  Takes the sting out of coming up with the funds all at once.  Maybe they just want to dollar cost average the profit sharing into the plan 4 times instead of once.  I understand that position from the ER's side, but not from our side.

I'm sure others will have thoughts on this too.  I have not personally had a plan try to deposit cross tested funds into the plan more than once a year.

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As long as the timing of contributions is not per se discriminatory I see no problems. Yes you don't want to have any contributions made during the year which exceed 415 limits but that's easily manageable. I disagree with the thought above that you can remove excess contributions without violating 411 d6. The only time you remove excess contributions is when there's a 415 violation.

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Check your plan document as to when specific contributions are allocated to participants to make sure document supports your actions, or at least does not prohibit or contradict them.

If it's a matter of cash flow, then using a holding account for PS deposits until year-end might be way to go, but if it's because owners want to invest their PS ASAP then that obviously doesn't work.

 

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I would be flabbergasted if the document doesn't provide for a single valuation date of the last day of the plan year. In this case valuation date equals allocation date. That does not scuttle the approach in any way shape or form.

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