I have a plan where one of the employees went from a W-2 employee to a partner. He received a W-2 and K-1 income. While I agree that the two pieces need to be added together to calculate the profit sharing contribution, I am being told to ignore the fact that the participant was a w-2 employee when doing the earned income calc for the profit sharing contribution (i.e. not reduce Earned income by employer contribution for their share of the contribution on their w-2 compensation) and also adjust the SS Wage base for this individual. I looked in the ERISA Outline book and can't find anything specific on this.
Can anyone shed some light on this or provide a solid reference siting?